Could industrial slowdown be next bump for GE?

BOSTON, Sept 25 - Investors who have made their peace with the slump at General Electric Co's hefty finance arm are left with another worry: How long can sales of big-ticket items like jet engines and power plants hold up in the face of a slowing global economy?

The second-largest U.S. company by market capitalization told Wall Street on Thursday that its profit for the year would tumble as much as 12 percent as the credit crunch takes a toll on profit at its financial unit.

Chief Executive Jeff Immelt assured investors that GE's industrial businesses -- which also makes railroad locomotives and wind turbines used to generate electricity -- remain on a strong growth footing.

With the United States facing the risk of what President George W. Bush described as "a long and painful recession" and Europe also showing signs of slowing, some investors don't share that confidence.

"A few months ago people were saying the U.S. is slowing down, but Europe is holding up. Not so fast," said Shawn Campbell, principal at Campbell Asset Management, a Chicago money manager that oversees $100 million in assets and counts GE among its holdings.

"It's going to get tougher, and that can't be good for GE," Campbell said. "We still have significant obstacles to overcome here."

GE shares rose about 4 percent on Thursday, rebounding from last week's five-year lows, after the company warned that its finance unit was facing difficulty but would still be profitable for the year.

'HIGH VISIBILITY'

GE executives like to emphasize that the long lead times needed to build high-value products like jet engines give years of backlog on sales. In June, for instance, a company official said the conglomerate's production of wind turbines was sold out through 2011.

"As we head into the cycle that we're heading into now, these businesses give us very high visibility on success and what we can expect in the next few quarters and years," Immelt told investors on Thursday.

He also said GE's infrastructure arms were on track for profit growth of 10 to 15 percent in the third quarter. When GE restructured in July, it combined its two financial segments into one called GE Capital and split its massive infrastructure arm into two businesses, one focusing on energy products and one on transportation and health care, in a bid to get investors more focused on the industrial side of the company.

"There still is a world out there that's buying stuff," Immelt said in an interview on the GE-controlled CNBC television network on Thursday.

But more investors are starting to raise concerns about demand for the heavy equipment made by big manufacturers.

Credit Suisse, for instance, on Thursday dropped diversified U.S. manufacturer United Technologies Corp from its U.S. focus list and cut its 2009 growth outlook on the world's largest maker of elevators and air conditioners, citing "a potential prolonged construction downturn as well as slowing international growth."

It maintained an "outperform" rating on United Tech.

In a sign of how those concerns are playing out on Wall Street, the Standard & Poor's capital goods industry index .GSPIC>, which includes GE, United Tech, Honeywell International Inc and other top manufacturers, has tumbled about 25 percent so far this year. That's a deeper slide than the 17 percent fall of the broad S&P 500 index .SPX> and an indication that investor worries extend beyond financial services.

While investors said GE needs to keep up a strong performance at its industrial units to offset the financial weakness, a slowdown in infrastructure spending could have ripples across the manufacturing sector.

"Are the emerging economies outside of the United States and Europe going to remain strong enough to sustain the earnings expectations of the likes of GE?" asked Peter Klein, senior portfolio manager at Fifth Third Asset Management in Cleveland, Ohio. "If they have to come back and reevaluate that at the end of the year, there will be hell to pay."