GE Earnings Soar on Lending Arm

By BOB SECHLER

General Electric reported a 77% increase in first-quarter earnings, lifted by marked improvement at its GE Capital financing arm and gains at most of its industrial units. Paul Vigna and John Shipman discuss.

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General Electric Co. reported a 77% increase in first-quarter profit, leaning heavily on its large lending business even as its core industrial operations picked up.

While GE's industrial businesses saw sales grow by 8% from a year earlier, their profit rose just 1%, weighed down by weakness in the company's big Energy Infrastructure unit.

GE Capital, the finance business, saw its profit more than triple to $1.8 billion, as its revenue rose 3%. Much of that increase came as GE set aside far less money to cover loans that might go bad than it did a year earlier.

Still, GE Chief Executive Jeffrey Immelt said the company's operating environment continues to improve and pointed to a record order backlog at its industrial businesses. Punctuating that optimism, GE raised its quarterly dividend by a penny to 15 cents.

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The move marks GE's third dividend increase in the past year, although the payout remains well short of the 31 cents GE paid out each quarter before slashing the dividend during the financial crisis.

GE shares fell 45 cents, or 2.2%, to $19.95 in 4 p.m. New York Stock Exchange trading Thursday. Peter Klein, a portfolio manager at Fifth Third Asset Management, said the results were solid but investors are concerned the pace of GE's recovery could falter.

For the quarter, GE posted a profit of $3.43 billion, or 31 cents a share, up from $1.95 billion, or 17 cents, a year earlier. Revenue rose 6.2% to $38.45 billion.

Mr. Immelt, who has acknowledged allowing the finance business to grow too large ahead of the financial crisis, when it became a weight on the company, is under pressure to show he can get the conglomerate's core operations rolling again.

To that end, he has made $11 billion in acquisitions over the past six months to expand GE's energy business. The moves include a $3.2 billion agreement last month to buy a controlling stake in French power-conversion company Converteam and a $2.8 billion deal in February to buy the well-support division of John Wood Group PLC.

Mr. Immelt said the company is finished with major acquisitions for 2011.

A key hurdle to turning around the energy unit, the only major GE segment that saw its profit drop in the first quarter, is depressed demand for gas turbines. On Thursday, GE executives said sales could see an increase following Japan's nuclear crisis, which has created a need for replacement power in Japan and may deter utilities from pursuing new nuclear plants.

"The dynamics have really changed subsequent to the disaster in Japan," Chief Financial Officer Keith Sherin said on a conference call with analysts. "You know, you see people canceling their plans to continue development of new nuclear plants."

The comments show how the company could ultimately profit from Japan's nuclear crisis even as it comes under fire for its role in designing and building reactors at the heart of events there. GE had expected turbine sales to fall this year, but now thinks they could be at least flat with 2010 and is preparing to increase production in the event sales grow.

GE continues to target 5% growth in revenue at its industrial businesses. New equipment and services orders totaled $19 billion, up from $17.1 billion in the year-earlier period but down from $24.8 billion in the fourth quarter. GE ended the first quarter with a $177 billion backlog of orders for big-ticket equipment and services, up from $175 billion at the end of the fourth quarter.

Write to Bob Sechler at bob.sechler@dowjones.com