Strong demand from Brazil, Russia and China drove General Electric Co profit up 18 percent in the third quarter despite sluggish economies in the United States and Western Europe.
The largest U.S. conglomerate said on Friday it expects earnings to rise at a double-digit percentage rate next year, following peer United Technologies Corp in trying to assuage investors' fears about Europe's brewing debt crisis.
Our emerging market growth was very strong, Chief Executive Jeff Immelt told investors on a conference call It was a good quarter in a volatile environment.
The world's biggest maker of jet engines and electric turbines met Wall Street's profit expectations despite weakening profit margins on its industrial products. Analysts said help from a lower-than-expected tax rate also boosted its results.
The company's shares were down about 1.6 percent in morning trading.
Margins missed our forecast and were down year on year in the four big industrial businesses, said Jeffrey Sprague, managing partner at Vertical Research Partners. There is little or no operating leverage in GE's portfolio due to low priced equipment in backlog and R&D headwinds.
The company said that third-quarter profit margin was its weakest of the year and forecast improvement in the fourth quarter and into 2012. In particular, it said energy unit profit margins -- hurt by weak demand for wind turbines -- would rise to a range of 15 to 16 percent in the fourth quarter, from a 14.4 percent third-quarter rate.
For a graphic on the manufacturing sector: http://r.reuters.com/bed54s
ORDER GROWTH STRONG
Investors took heart in the company's 16 percent growth in industrial equipment orders -- an important indicator of future revenue, and in the 25 percent rise in international sales. GE has been counting on strong demand in rapidly developing economies to offset weak U.S. and European demand.
The revenue number was strong and the organic growth rate in industrial was strong, said Jack De Gan, chief investment officer at Harbor Advisory Corp in Portsmouth, New Hampshire. Those are telling and they give us a little bit of a look into next quarter and beyond.
The report comes amid a wave of generally strong earnings reports from big U.S. manufacturers. Also on Friday, Honeywell International Inc reported a 45 percent profit rise that topped expectations. Fellow blue chips Caterpillar Inc and 3M Co will report next week.
Still, investors remain concerned whether Europe's crisis could drag down global demand by shaking the financial system.
Possible concerns going forward are going to be related to Europe and what impact that may have, not just there but on global growth in general, said Perry Adams, vice president and senior portfolio manager at Huntington Private Financial Group in Traverse City, Michigan. There's elevated uncertainty.
GE has been preparing for an uncertain economy.
I don't think the environment has really surprised us so much, Immelt said of the European worries. We've positioned our company to win in '12.
BUYS BACK BUFFETT STAKE
The Fairfield, Connecticut-based company reported third-quarter earnings attributable to common shareholders of $2.34 billion, or 22 cents per share, compared with $1.98 billion, or 18 cents per share, a year earlier.
The results included an 8-cent-per-share charge to buy back the preferred shares the company had sold to Warren Buffett's Berkshire Hathaway Inc during the financial crisis.
Buying back the Buffett stake, which carried a preferred dividend, will boost GE's annual earnings by 3 cents per share in the coming years.
Factoring out one-time items, profit came to 31 cents per share, meeting analysts' average forecast, according to Thomson Reuters I/B/E/S.
Revenue was little changed at $35.37 billion, above the $34.94 analysts had forecast.
Its shares were down 1.6 percent at $16.36, on a day the Standard & Poor's 500 index was up 1.8 percent.
(Reporting by Scott Malone in Boston, additional reporting by Nick Zieminski, Edward Krudy and Ryan Vlastelica in New York, editing by Maureen Bavdek, Derek Caney, Dave Zimmerman)