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11 Apr 02. In a sign that the slowing economy has affected even the mightiest pillars of Corporate America, General Electric said on Thursday that its first-quarter revenue growth was essentially flat, falling short of most analysts’ forecasts.
General Electric earned $2.5bn, or 25 cents a share, compared to $2.6bn, or 26 cents a share, in the year-ago period. Excluding the effect of a new accounting method, the company made $3.5bn, or 35 cents a share, up from $3 billion, or 30 cents a share, last year. Analysts polled expected GE to earn 35 cents a share.
Revenue totalled $30.5bn, about the same as in the first quarter of 2001. In the company’s first conference call as part of its emphasis on increased communications of its accounting, GE CFO Keith Sherin said the current business environment is “tough,” but he pointed out that it’s a great time to continue the conglomerate’s practice of growth through acquisitions.

He stressed the value of productivity in GE’s earnings, and reiterated the 2002 target of $1.65 to $1.67 per share.

“There are some signs of strengthening,” as the company moves into the second quarter, he said. The airline and insurance industries hit GE, and short cycle industrial business results were “tougher than expected.” GE Power Systems, GE Capital and productivity provided strength in the bottom line.

Financial highlights of the quarter include:

· Earnings before required accounting changes rose 17%, to $3.518bn, or $.35 per share, (2001: $3.017bn, or $.30 per share). Both earnings and EPS were records for the quarter. Earnings after required accounting changes in both quarters are described below.
· Revenues of $30.5bn were about the same as in first quarter 2001. Industrial businesses’ revenues grew 5%, reflecting continued strength at Power Systems,
including termination revenues of $476 million, and
· Cash generated from GE’s operating activities, excluding progress collections, was $2.2bn, up 18% (2001: $1.8bn). Reflecting record progress collections in 2001, reported cash flow from operating activities of $1.4bn was 53% lower than last year’s $3.1bn.
· Operating margin was a first-quarter record 18.2% of sales, up from last year’s 17.7%. GE’s digitization initiative was a significant contributor to margin expansion in the quarter.

Comment: Rumours of a rationalisation in the world aero engine business as reported in BATTLESPACE UPDATE (BATTLESPACE UPDATE Vol.4 ISSUE 6, February 14th 2002 – ROLLS-ROYCE EVOLVES INTO A MARINE SYSTEMS COMPANY)will not go away; these results from GE will fuel that speculation. On April 10th United Technologies Corp.’s (NYSE:UTX – news) chief executive squashed talk of a possible partnership between the company’s Pratt & Whitney aircraft engine business and rival Rolls Royce Plc (RR.L). “There is nothing to say about Rolls Royce, zero,” said George David, responding to questions after United Technologies’ annual shareholder meeting in New York.

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