General Electric Co posted its first quarterly profit increase in more than two years on Friday, but a sharper-than-expected drop in revenue spooked investors and its shares fell about 4 percent.
A 4 percent slide in second-quarter revenue overshadowed an 8 percent rise in orders at the largest U.S. conglomerate -- the first time they have increased since 2008.
Cost cutting helped push up profit 16 percent at GE, the world's biggest maker of jet engines and electric turbines.
Chief Executive Jeff Immelt said he believed business conditions had improved in the quarter and reiterated GE's plans to increase earnings and raise its dividend next year.
GE's economic environment continues to improve, Immelt said. But he cautioned that the economy is going to strengthen at different paces around the world.
Investors appeared not to share his confidence, though, and sent the shares down 61 cents to $14.64 on the New York Stock Exchange. Shares of big U.S. banks Bank of America Corp and Citigroup Inc also fell as concerns about lackluster loan demand eclipsed stronger-than-expected earnings.
The economic backdrop is a touch softer, said Mike McGarr, portfolio manager at Becker Capital Management in Portland, Oregon. GE is such a big ship that it's going to take a while for this thing to show improvement.
In a sign of the tricky economic environment GE is facing, U.S. data showed that consumer sentiment dropped to a near one-year low in July, a key indicator as consumer spending accounts for the lion's share of U.S. economic activity.
PROFIT TOPS STREET BY 3 CENTS/SHR
GE said net earnings attributable to common shareholders rose to $3.03 billion in the second quarter, from $2.61 billion a year earlier.
The result, which worked out to 30 cents per share from continuing operations, topped Wall Street's forecast of 27 cents per share, according to Thomson Reuters I/B/E/S.
Revenue eased 4.3 percent to $37.44 billion, lower than the $38.37 billion analysts had expected.
It's a nice beat on the bottom line on EPS, but the revenue number is still light, said Peter Sorrentino, senior vice president and portfolio manager at Huntington Asset Advisors in Cincinnati, which holds GE shares. It looks like it's still a cost-cutting story.
Chief Financial Officer Keith Sherin said the company's plan to boost its dividend next year will not be contingent on the planned sale of its NBC Universal media business. [ID:nN16115483]
FORGIVE THE SHORTFALL?
The company is in the process of pruning GE Capital -- which Immelt says he allowed to grow too big -- in order to focus on financing equipment purchases, commercial lending and investing in real estate. On Thursday GE reached a $1.9 billion deal to sell its controlling stake in Latin American bank BAC-Credomatic to Colombia's Grupo Aval .
The lower-than-expected revenue in part reflects success in scaling back GE Capital, said Jack De Gan, chief investment officer at Harbor Advisory Corp in Portsmouth, New Hampshire, which holds GE shares.
You can forgive them that shortfall, De Gan said. Anything that gets them to a smaller GE Capital balance sheet with less risk is going to be viewed positively.
Immelt said the company expected to increase orders at single-digit percentage rates for the rest of the year, with equipment used in hospitals and in oil and gas production seeing strong demand.
Wall Street will get further evidence of the economy's direction when U.S. industrial bellwethers United Technologies Corp , Caterpillar Inc and 3M Co report results next week .
Company officials said the regulatory review of GE's pending sale of a majority stake in its NBC Universal media business to No. 1 U.S. cable operator Comcast Corp appeared to be on track.
That sale, as well as improving results, will leave the Fairfield, Connecticut-based company with about $25 billion of cash. Part of that money is earmarked to buy back the $3 billion of preferred shares GE sold to Warren Buffett's Berkshire Hathaway Inc in October 2008.
(Reporting by Scott Malone; additional reporting by Nick Zieminski and Ryan Vlastelica in New York and Atul Prakash, Harpreet Bhal and Jon Hopkins in London and Blaise Robinson in Paris; Editing by John Wallace and Steve Orlofsky)