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By Alwyn Scott
(Reuters) - General Electric Co reported a smaller-than-expected drop in profit on Friday, but cut a key financial target, raising questions about its full-year outlook and sending shares sharply lower.
The 126-year-old industrial conglomerate, whose power and financial-services units are struggling, said it expects to generate perhaps $1 billion less free cash flow than expected this year.
The forecast cast doubt on GE's full-year adjusted profit target of $1.00 to $1.07 a share. Though GE affirmed that target on Friday, many analysts see it as unrealistic and have cut their estimates to less than $1.00.
"We are getting questions as to how the company can maintain EPS guidance while cutting free cash flow guidance," JPMorgan analyst Stephen Tusa wrote in a note on Friday.
GE's conference call with analysts also cast doubt on the outlook. "They gave you all the conditions for why the forecast could go down," said Deane Dray, analyst at RBC Capital Markets.
For example, GE had previously said it expects to ship 50 to 55 large power turbines this year. "On the call, they said 'We're targeting 50.'" GE also said power equipment sales may take longer to close. "The only thing you're going to hear from that is there's downside risk," Dray said.
The stock was down 5.2 percent at $13.02 in midday trading.
The stock decline was "all about cash and (GE's) acknowledgement of risk to the second half," said Jeffrey Sprague, analyst at Vertical Research Partners.
GE cut the industrial free cash flow target to $6 billion from a range of $6 billion to $7 billion.
Its adjusted earnings, which exclude certain pension and restructuring costs, fell 10 percent to 19 cents a share, beating analysts' expectations of 17 cents a share, according to Thomson Reuters I/B/E/S.
Total revenue rose to $30.1 billion from $29.1 billion.
GE said weakness in power and renewables energy offset gains in its aviation and healthcare units.
A decade and a half ago, GE was the world’s most valuable public company. But the Boston-based conglomerate foundered in several industrial markets and its move into financial services steered it into the global financial storm in 2008.
GE shares have halved in the past year. Though investors are still interested in GE, many want to see the power and capital units stabilize and even improve before buying the stock, analysts have said.
'THEY DIDN'T SCREW UP'
GE revealed no new bad news about ongoing accounting investigations, a shareholder lawsuit and a federal inquiry into subprime mortgage activity, and appeared to be operating better, some analysts said.