GE Expects to Hit High End of Q3 Outlook

FAIRFIELD, Conn. – General Electric Co. (GE) on Thursday raised its profit forecast for the year and its chief executive said the U.S. economy was "pretty darn good," giving GE shares their biggest one-day percentage jump in 21 months.

GE was up 2.5 percent in afternoon trading, its best one-day gain since January, 2004. It was the biggest percentage gainer among the Dow Jones Industrials (search), which were trading lower for the third consecutive day.

The bullish comments from GE chief executive Jeffrey Immelt (search) were notably more optimistic than a survey of U.S. chief executives by the Business Council, chaired by Immelt, which found the majority expressing only temperate optimism.

GE, whose products range from aircraft engines to medical scanners and television programs, said strong orders for its equipment and services fueled profits in its third quarter, and said the momentum was carrying over into the fourth quarter.

In an interview with CNBC television, a unit of GE, Immelt said while optimism about the U.S. economy is moderating, "I still think the underlying economy is still pretty darn good."

Immelt said that moderation was due to volatility created by energy costs, the impact of hurricanes that hit the U.S. Gulf Coast and rising interest rates.

Following Immelt's comments, the company estimated third-quarter profits of 44 cents per share, from a previous forecast of 43 cents to 44 cents, matching Wall Street estimates. The company is set to report third-quarter results on October 14.

GE also said it sees 2005 profits in a range of $1.81 to $1.83 per share, raising the bottom end of its forecast by a penny. That compares with analyst forecasts of $1.82, according to Reuters Estimates.

"We think they will continue to hit their growth targets and that means nice earnings growth and you're not paying a whole heck of a lot for it," said David Katz, chief investment officer at Matrix Asset Advisors.

Katz said GE's price-to-earnings ratio of less than 19 is a fair price for "one of the highest-quality U.S. businesses."

"The business continues to move forward in an economic environment that hit some head winds in the last few weeks, and GE seems to be navigating it in very good form," Katz said.

He expects the shares to reach the high 30s to low 40s within six to 18 months, and is adding them to his portfolio.

The company also said it will increase its share buyback program by $1 billion to more than $4 billion this year. It estimated cash flow from operating activity will top $19 billion this year.

GE shares were up 82 cents to $33.50 on the New York Stock Exchange.

Including Thursday's performance, the shares have lost 8 percent of their value this year, lagging both the Dow and the broader S&P 500.

Immelt called GE's third-quarter performance "pretty good," adding he is "very bullish on the third quarter and the year ... despite the hurricanes."

As for inflation fears, Immelt acknowledged prices are going up, but added the increases are not universal.

"Any business where there is excess capacity, prices are going down, so I don't think it's broad-based."

Immelt emphasized GE's global strength — particularly at its plastics business — to cope with record energy costs and compete with rivals overseas who benefit from lower feedstock costs.

"We build things around the world in plastics and we will gravitate volume to those places that are economically advantaged, and we'll raise prices," Immelt said.

But costs for such items as natural gas, which surged to more than a two-year high, above $14 per million British thermal units this week, could be lower if there were more investment, according to Immelt.

"Natural gas (priced) at $12 is silly," Immelt said. "There is a lot of natural gas out there. We've got to invest in infrastructure, in pipelines and liquefied natural gas terminals. This is a self-inflicted wound."

GE's CEO said it was too soon to tell what type of impact high energy costs will have on GE's fourth quarter.