GE profit up 9.6 percent, to sell subprime unit (Reuters)

By Scott Malone

BOSTON (Reuters) - General Electric Co. reported earnings in line with Wall Street's expectations on Friday, citing strong demand for jet engines, gas turbines and other heavy equipment, sending shares to a five-year high.

Those businesses overshadowed weakness at the company's loss-making WMC Mortgage subprime lending unit, which is being put on the block.

"They had a very solid quarter, all the drivers for GE of late definitely came through," said Perry Adams, senior portfolio manager at Huntington Private Financial Group, of Traverse City, Michigan, which manages about $12 billion in asset and holds GE shares.

GE, whose operations also include NBC media, said second-quarter net income rose to $5.42 billion, or 53 cents per share, from $4.95 billion, or 48 cents a share, a year earlier.

Profit from continuing operations came to 52 cents per share, matching the analysts' average forecast, according to Reuters Estimates.

Revenue rose 12 percent to $42.32 billion.

"The U.S. consumer seems fine, unemployment is at low levels and we're not seeing really any warning signs with the U.S. consumer," said GE Chief Executive Jeff Immelt, on a conference call with analysts.

HEALTH CARE A WEAK POINT

Another weak spot was GE's health care business, which makes diagnostic imaging tools like CAT-scan and MRI machines. Profit in that unit fell 8 percent due to regulatory changes.

One reason for the downturn in healthcare, the company said, was a change in the way the U.S. government reimburses patients for some diagnostic imaging tests. That in turn reduced demand for the machines.

But the Fairfield, Connecticut-based company said it expect matters to improve at GE Health Care and forecast flat profit growth in the third quarter.

Infrastructure segment profit was up 23 percent, making it the fastest-growing unit, followed by commercial finance, which showed an 18 percent gain.

Despite the subprime weakness, profit at GE Money, which includes that unit, rose 8 percent.

GE expects to report third-quarter earnings from continuing operations of 54 cents to 56 cents per share. Analysts expect 55 cents, according to Reuters Estimates.

GE also plans to repurchase up to $14 billion of its shares this year.

"Some people were expecting them to take guidance down because of the plastics unit, but they kept it the same, which is the result of the big stock buyback," said Jerome Heppelmann, portfolio manager of the Old Mutual Large Cap Fund and Old Mutual Focused Fund at Liberty Ridge Capital in Berwyn, Pennsylvania.

In May, GE agreed to sell its GE Plastics unit to Saudi Basic Industries Corp. <2010.SE> for $11.6 billion. The deal, expected to close in the third quarter, will remove from GE's portfolio a business that had been a drag on profits.

SHARES CLIMB

Shares of GE -- the world's second-largest company by market capitalization, behind Exxon Mobil Corp. -- rose 96 cents, or 2.5 percent, to $39.96 on the New York Stock Exchange. That is the highest the shares have been since March 2002.

While investors have expressed concern about the shares lagging performance against the major U.S. indexes in recent years, GE shares have regained some ground. They are now up 7 percent for the year, though they still trail the Dow Jones industrial average <.DJI>, up 11 percent and the Standard & Poor's 500 <.SPX>, up 9 percent.

GE shares trade at 17.6 times forecast 2007 earnings, compared with a forward price-to-earnings ratio of 16 for the Dow, of which they are a component.

(Additional reporting by Helen Chernikoff and Jennifer Coogan in New York, and Anshuman Daga in London)