NBC Uni Q1 up, but not by much
GE loses $40 bil-plus of its value as stock dives 12.8%NBC Universal was a rare spot of profit growth in General Electric's first quarter, but the entertainment arm's gains underperformed its targets for full-year growth as the industrial and media conglomerate shocked Wall Street with a big profit miss.
GE on Friday cited financial turmoil and a weak U.S. economy, which renewed investor fears and dragged down broader markets and The Hollywood Reporter's Showbiz 50 stock index.
Sluggishness in some areas of GE's media business also was a possible warning sign that the economic slowdown in the U.S. may now start to hurt media and entertainment companies amid growing recession fears.
NBC Uni's 3% increase in quarterly profit meant its sixth straight quarter of earnings growth. However, the gain is running behind the 10%-15% increase management has forecast the entertainment unit to bring in for all of 2008 (HR 12/13).
Revenue at the entertainment arm also rose 3% in the latest quarter to $3.6 billion, but local advertising revenue was down 11% — a sign of continued pain in local media. "This is an indicator that it's tough out there," GE CFO Keith Sherin said Friday.
Also, digital media revenue — seen as a major growth engine across the industry — edged up only 5% at NBC Uni. Industry experts have been debating whether momentum in the online ad market is starting to be hurt by a looming recession, and NBC Uni's 5% improvement looked like a possible sign of such economy-induced trouble (HR 3/21).
In addition, the firm's theme parks business started seeing weakening attendance and spending trends in March, with GE management vowing to keep a close eye on the trends.
On the positive side, NBC Uni again brought in strong cable networks and film figures in the first quarter. Sherin touted strength at USA, Bravo, Sci Fi, CNBC and MSNBC, which had its highest-rated quarter in six years. "We had another great quarter," he said about the cable channel business. TV-DVD sales also were solid thanks to such hit TV show releases as "Heroes" and "House."
DVDs, including "American Gangster" and "Atonement," also were a strong suit of the film operation,. It brought in double-digit operating profit growth, GE said.
Economic trends and financial outlook were so squarely in focus Friday that no one on the conference call even mentioned the upcoming Beijing Olympics, which NBC and its various cable siblings will carry.
With profit gains only at NBC Uni and a second unit, GE reported its first quarterly profit decline since 2003, with the company largely blaming the earnings shortfall on a weak U.S. economy and the recent market turmoil following the implosion of investment bank Bear Stearns. Management said it didn't foresee a negative turn in fortunes in the back-half of March.
Based on the earnings miss, the conglomerate lowered its full-year 2008 forecasts.
GE shares dragged down U.S. and European markets Friday and lost 12.8% to close at $32.05, close to their 52-week low of $31.65. This shaved more than $40 billion off the firm's market value, which at day's end stood at $320 billion, according to Yahoo Finance.
The Showbiz 50 lost 2.7% to end at $1,092.48 as only four stocks on the index closed slightly higher.
"Demand for our global infrastructure business remained strong, but our financial services businesses were challenged by a slowing U.S. economy and difficult capital markets," GE chairman and CEO Jeff Immelt said. In a mea culpa on the earnings conference call, he said his team was "disappointed" by the results.
Asked on the earnings call which economic scenario GE is using for its projections, Immelt said that in the case of NBC Uni and some other key units "we assume that the economy is going to be very tough and will remain tough."
GE's profit from continuing operations dropped to $4.36 billion from $4.93 billion in the year-ago period even though revenue rose 8% to $42.2 billion.