General Electric braces for more trouble in Europe

Economic turmoil in the Old World is felt by companies in the New World.

By Jonathan Berr Dec 14, 2011 2:19PM
(© Photodisc/SuperStock)General Electric (GE) CEO Jeffrey Immelt sees tougher times ahead in Europe. 

Speaking Tuesday at the company's annual investor day in New York, Immelt announced plans to "restructure some of its industrial operations to prepare for a European recession," according to the Wall Street Journal. The slowdown will affect many GE businesses, including health care, where the company expects the market to contract by as much as 10%.

Though the Journal story doesn't specify this, "restructuring" is often a code word for employee layoffs. GE will take a charge of three to four cents a share because of these costs in the fourth quarter. The company, based in Fairfield, Conn., is not the only U.S. firm being squeezed in Europe.

Best Buy (BBY) recently announced that it was shuttering its big box stores in the U.K. as it tries to reverse five consecutive quarters of same-store sales declines. CEO Brian Dunn bluntly added that the 11 stores "could not overcome the challenging macro environment and did not provide the results we had expected." Abercrombie & Fitch (AF), which had aggressively expanded in Europe, recently spooked Wall Street when it announced a decline in third-quarter sales in the region. Gap Inc. (GPS), which recently opened a nearly 16,000-square-foot Banana Republic store in Paris, is taking a cautious approach in Europe as well. "The consumer sentiment is very difficult in the European market," said CEO Glenn Murphy during Gap's recent earnings conference call.

The news out of Europe isn't all bad for U.S. companies. McDonald's (MCD) recently announced that comparable sales growth in Europe rose 6.5%.  Infosys, a software services exporter based in India, expects to reverse three years of sluggish revenue growth in Europe. It may be the exception rather than the rule, however, given that the E.U. expects growth to stagnate well into 2012. For producers of big-ticket items such as GE, that's bad news though it's far from a fatal blow.

"From a macro standpoint, our earnings are going to look pretty decent by the time the dust settles in 2012," the Journal quotes Immelt as saying.

Even with the weakness in Europe, GE is expecting double-digit profit growth on the strength of its business in emerging markets. The improving U.S. economy should help bolster the company's bottom line as well.

Jonathan Berr owns shares of McDonald's.




3Comments
Dec 14, 2011 5:48PM
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"The improving U.S. economy should help bolster the company's bottom line as well."  Does he expect North Dakota to carry the nation's economy all by itself?  We now have the lowest percentage of  the nation's population employed ever measured.  While govt employees scream about getting smaller and fewer dost of living increases, the rest of us, who actually work harder and longer than govt workers, and produce value,  are losing our jobs, our businesses, our homes, our retirement plans, our medical coverage, etc.    We will have no future unless the tax burden on the middle class is decreased, and the only way to do that is to get rid of the earned income credit and make everyone pay some taxes.   

Dec 14, 2011 5:50PM
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Oh yeah,  GE, Obama's buddy who sends his jobs to Europe and Asia and So America, pays no income taxes in the USA.  He is a great source of reliable information about how much the USA's economy is improving.  We would all do better if we had no tax burden.
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