By Kennedy Maize
Washington, D.C., January 21, 2012 — What’s a poor reader to do? Industrial giant General Electric, a crucially important company for many in the energy biz and long a stalwart of the Dow Jones Industrial Average, announced its fourth quarter economic performance this week.
The New York Times, which always follows GE carefully, in part because the company’s headquarters is in Fairfield, Conn., headlined its account: “G.E. Says Operating Profit in Quarter Rose 6%.” The Wall Street Journal, which is the paper of record when it comes to U.S. financial news, led the paper with a story headlined: “GE’s Profit Declines 18%.” The venerable Financial Times, the London predecessor of the Wall Street Journal, reported, “GE profits limited by finance arm.”
What gives? How can three excellent newspapers, with experienced business reporters, find such disparate results from the same company report? Who is right and who got it wrong?
Answering the last question first, they are all correct, based on the 13-page earnings press release GE issued. Like far too many company press releases, the GE offering appears designed to put a positive spin on the company’s performance and force skeptical reporters to probe beneath the surface gloss. GE didn’t prevaricate, didn’t avoid, didn’t mislead. It just put its best face forward, leaving it up to the journalists to search for warts and wrinkles.
So to the NYT account accurately reflects the GE press release. The first sentence in the GE press release reports “operating earnings” of $4.1 billion (39 cents/share), “up 6% and 11% respectively from the fourth-quarter of 2010.” That’s where the Times got its 6% figure. The Times properly discounted the EPS report, as earnings per share are not just a function of earnings, but also of the number of shares, which GE has been buying back of late. Without making much of the fact, the Times correctly noted that “net earnings fell 16 percent, to $3.7 billion, largely because the year-ago quarter included to proceeds of the sale of NBC Universal.”
But the WSJ story focused on the net earnings, as the reporter zeroed in on the section of the press release describing the net after last-years sell-off. GE stated, “Including the effects of discontinued operations, fourth-quarter net earnings attributable to GE were $3.7 billion in 2011 ($0.35 per share attributable to common shareowners), compared with $4.5 billion in the fourth quarter of 2010 ($0.42 per share attributable to common shareowners, down 18%.” As the Times reported, that reflects the Universal sale.
The FT story focused on the earnings per share from continued operations increase, a bare 3% compared to the 2010 fourth quarter, figuring that shareholders are most concerned about what they are taking home from the quarter, not the big numbers. That’s a defensible decision, although not one I would make.
On balance, my choice for the account that most accurately reflects the position of General Electric following the fourth quarter is found in the Times. I think excluding one-time events such as the sale of Universal makes sense, as the result more accurately reflects GE’s ongoing business. But the treatments in the Journal and the FT, with generally more sophisticated business readers, are also accurate and valuable.
The best account of all, reported in the Journal, comes from GE CEO Jeff Immelt, a man I have frequently hammered in this blog. He said, in a conference call with reporters, “It’s a good quarter. It could have been better. I like our momentum.” That’s not only a well-formed opinion about GE, but a pretty good summary of where the U.S. economy stands going into the first quarter of 2012.