Pathetic GE: Blame Bear Stearns For Our Mess

Good news for NBC U: they're not GE's (GE) only problem anymore. Bad news for GE: CEO Jeff Immelt suddenly sounded like the just another American CEO, blaming everything but himself GE for the blown quarter.

Specifically, Jeff blamed the collapse of Bear Stearns (BSC) in mid-March and an "unprecedented" financial environment that followed for a 5.8% drop in net income at GE and sharply reduced guidance for the year. Of course, it was impossible to have seen any of this coming two weeks before the end of the quarter when Jeff did a global webcast bragging about how great everything was. Never mind that the credit crunch started last summer.

The "markets" obviously weren't GE's only problem. NBC U also missed profit and revenue targets, but was only one of two divisions to show any profit growth and even with 3% growth did a lot betten than most GE units, including Healthcare (down 17%), Commercial Finance (down 20%), GE Money (down 19%), and Industrial (down 16%).

NBC U actually contributed a higher percentage of profit to GE in Q1 (11.3%) than in Q4 or all of 2007, and tellingly, not a single analyst on the Q1 call asked CEO Jeff Immelt why GE still owns the media company. NBC U turned in $3.58 billion in revenue in Q1, up 3% from last year, and $712 million in profit, also up 3%.

Still, GE believes NBC U, with its exposure to local advertising markets in the U.S., is facing a tough year ahead. "We are not counting on business getting any better, and we've allowed for a worsening for the U.S. consumer," Immelt said.

Despite the challenges, Immelt set the bar high for NBC U. Second quarter revenues are expected to grow 10% and profits 5%, while full-year earnings are expected to grow 5%. Keep in mind revenue from the Olympics will start to hit in the second half of 2008, which could balance an otherwise weak advertising environment.

Notes from GE's conference call:

Goldman Sachs: The timing of the miss. Back on March 13 you reaffirmed guidance. What do you know now that you did not know two weeks ago?

Immelt: The week before the Webcast I had a chance to review the businesses. I felt at that time we were still on track for the quarter and the year. Two days after webcast the Bear Stearns thing took place. This is not a company about excuses. Things changed in the last two weeks of March. We had an inability to do transactions we are normally able to do.

JP Morgan: Is there something cultural with GE that makes it hard for a company this big to take a hard look in the mirror and make changes to unlock value? Everything thats great at GE seems to be offset by things that people are less focused on? Thinking twice about strategy?

Immelt: If you look at financial services and the way it took place, we weren't alone in that. We are in an unprecedented era. Our earnings down 20% against the industry, are still strong. I think the strength of the company are the big backlogs we have in infrastructure. I like Healthcare--we have world-class franchises across the board. We will continue to work the portfolio to invest in higher margin businesses. I understand your frustration. But in the totality of the company this is a company that delivers. We made a lot more money than we did five years ago. The franchise is strong and so is the strategy.

Lehman: You said second half of March increased financial stress. What is going on in April?

Sherin: There are very few indicators in the first two weeks. Its hard to say that we're seeing a different environment than the second half of March.

Morgan Stanley: It seems like something is broken here. Is something else going on? Cuturally having issues? Losing key people having impact (such as David Calhoun?)

Sherin: Don't think that's fair. We have continued to execute. We continue to generate cash flow as well as earnings and that's a challenge with a company of our size. There is one soft spot, I think Healthcare has been tough. Other than that we have been operating the company pretty well and hitting our numbers pretty well.

Immelt: We are into an unprecedented financial cycle. I think we should continue to drive the strategy that we've got and that's what we're going to do.

Credit Suisse: How much shortfall in the quarter is tied to the economy and how much self-inflicted?

Immelt: We still in the US have early warning systems (to a slowdown) with appliances and NBC U. We have reflected in the guidance a US economy that is going to stay very tough. We have some window on the global economy in the businesses that we're in. We are not counting on the (US) business getting any better and we've allowed for a worsening for the US consumer.

Notes from the call:

Immelt sums it up: "Overall, a mixed performance in a tough environment."

"We are disappionted with our performance, we missed guidance due to the performance, but not solely due to the performance of financial services"

"We did see a slowing economy in Q1. We had planned for a different environment in December, but the quarter became more difficult, especially in financial services during the quarter. We have reframed the balance of the year based on the world we see today."

"We've reviewed all the operating businesses in the last few weeks and made operating adjustments as we approach the year going forward."

Says GE is not counting on any operating improvements for the rest of the year.

On NBC U, Healthcare and Industrial, if the economy gets worse, we can still accomodate

GE CFO Keith Sherin: "NBC U continues to deliver solid, profitable growth." Says NBC "primetime" on pace to finish #2 for the season. Says NBC's "Infront" presentation of 52-week schedule "well recieved by advertisers."

More positives: USA Network #1 on cable. Bravo and Oxygen had best Q1 ever. MSNBC is up 43% fin ratings year-to-date.

Keep in mind, NBC U turned in 3% revenue and profit growth, when in January Immelt predicted 10% revenue growth at NBC U and 5-10% profit growth.

Miss in healthcare due to challenging US environment, offset somewhat by global growth

NBC delivered 6th consecutive quarter of profit rowth. stations and network were basically flat. NBC U produced content that really helped in the quarter. The one offset was local markets were challenging. Local ad sales decreased 11% in the quarter.

Film: had a very strong quarter. Profits up double-digits due to strong DVD sales, led by "American Gangster."

Digital: "We launched the consumer version of Hulu to very good reviews and digital revenue is up about 5%."

Sherin: "Overall another on-track quarter from the NBC U team."

2nd Quarter guidance for NBCU: Still saying 10% revenue growth and 5% profit growth. That was their projection for Q1, too, which they missed.

Immelt on GE: "The business model remains very strong. the balance sheet is strong. very strong global growth. Cash flow is high. We believe the company has lots of strengths as we sit here today."