April 14 (Bloomberg) — General Electric Co. Chief Executive Officer Jeffrey Immelt told shareholders in December that 10 percent growth in earnings to $2.42 a share this year was “in the bag.'’ What a difference four months make.

GE reduced the forecast Immelt had repeated as recently as March 13, citing turmoil in financial markets that slashed the value of investments and thwarted end-of-quarter dealmaking. Fairfield, Connecticut-based GE three days ago predicted 2008 profit will increase no more than 5 percent, calling Immelt’s forecasting and strategy into question with investors.

“Immelt now has to be put in the penalty box,'’ James Hardesty, president of Hardesty Capital Management in Baltimore, said in an interview with Bloomberg Television. Hardesty Capital manages $700 million including GE shares.

Immelt, 52, took over GE from Jack Welch just four days before the September 11, 2001 terror attacks and has spent his tenure fine-tuning GE to limit risks. He sold units with annual revenue of about $50 billion, such as plastics sensitive to oil prices, and protected GE’s AAA credit rating while building higher-return areas such as power generation and commercial finance.

Now he must rebuild faith with investors who had stuck with him during the 19 percent stock-price decline under his tenure because of GE’s dividend yield of about 3.9 percent and consistent earnings.

“He’s going to be challenged to show the Street that surprises like this won’t happen again,'’ said Noel Tichy, a professor at the University of Michigan in Dearborn and the author of books on GE management, including its time under Welch. “His strategy for the long term is still solidly in place.'’

Missed Forecast

GE cut its 2008 annual forecast to a range of $2.20 to $2.30 a share from the prior $2.42. Quarterly earnings dropped for the first time since 2003, with profit from continuing operations falling to $4.36 billion, or 44 cents a share, from $4.93 billion, or 48 cents, a year earlier. That trailed the 51 cent a share average of 15 analyst estimates in a Bloomberg poll.

The stock dropped $4.70, or 13 percent, to $32.05 in New York Stock Exchange composite trading, its biggest one-day rout since the stock market crash in October 1987.

Part of the earnings miss — 5 cents a share — can be blamed on the credit market seizure after the Federal Reserve helped arrange the sale of imploding Bear Stearns Cos., Immelt told analysts who asked him on a conference call why he had repeated the forecast on a March 13 Webcast.

`A Different World’

“Two days after the Webcast, the Bear Stearns situation took place,'’ Immelt said. “The last two weeks in March were a different world in financial services.'’

Immelt bought about $5 million in GE shares in the open market in early March and benefited as shares rose 12 percent during the month, a gain that evaporated with the earnings report. He owns about 1.43 million GE shares. His total compensation, including the value of securities he can’t access yet, rose 9.7 percent last year to $19.6 million, according to GE’s annual proxy filing.

Frustration with GE’s forecasting performance bubbled over on the analyst call with Immelt. Analysts at Goldman Sachs Group Inc., Credit Suisse Group, Deutsche Bank AG and Citigroup Inc. cut their ratings on the shares.

“In the six years I have covered the stock, every year, it is kind of like the Chicago Cubs,'’ Scott Davis, an analyst at Morgan Stanley in New York, told Immelt on the call, referring to the U.S. Major League Baseball team with the longest championship drought of 100 years. “It’s next year, next year, and now you’re looking at a year where you could under-grow the S&P in a year when it looked like you could substantially beat the S&P. So I guess for the credit of shareholders, how should we judge you?'’

Sticking to Strategy

Immelt said he will stick to his strategy for profit growth. GE Infrastructure, the biggest segment, beat the company’s own revenue forecast and had a profit gain of 17 percent. Last year was also the first time more than half of total company revenue came from overseas, another strategy to steady growth.

“We hate missing, we hate disappointing investors, we don’t want to do it again,'’ Immelt said on the conference call. “So we’ve tried to create a framework that we know has got our credibility associated with it and that is something that we all take very seriously.'’

The time has come for greater scrutiny of Immelt, said Peter Sorrentino, a senior portfolio manager at Huntington Asset Advisors in Cincinnati, in an interview with Bloomberg Radio. Huntington manages $16.7 billion in assets and owns 6.7 million GE shares.

“It’s really incumbent on the board to ask tougher questions now,'’ Sorrentino said. “The board needs to ask, `Are we really headed in the right direction? Yes, the Infrastructure business is going very well; let’s make sure that we’re not blowing it on the other side.’ ‘’