* Operating earnings per share 38 cents vs 37 cents estimates
* Revenue up 2.5 percent, shy of estimates
* CEO sees "double-digit" 2012 profit growth
* Energy arm restructuring, vice chairman to leave
* Shares up 2.4 percent
By Scott Malone
July 20 (Reuters) - General Electric Co on Friday reported a 2.5 percent rise in profit from continuing operations, topping Wall Street expectations, as solid demand in the United States and emerging markets offset weakness in Europe.
The largest U.S. conglomerate by revenue stuck with its forecast for the rest of 2012, saying it would increase earnings at a double-digit percentage rate by pushing profit margins higher.
In a move intended in part to cut costs, GE said it will break up its big energy division into three separate units.
"The environment continues to be challenging," Chief Executive Jeff Immelt said on a conference call with investors. He said the U.S. economy was stable, adding that "Europe remains very tough, but within our expectations."
GE's industrial sales in Europe were down 7 percent in the quarter, but up 6 percent in the United States and 24 percent higher in China, said Chief Financial Officer Keith Sherin. Overall revenue rose 2.5 percent, but missed expectations.
The company, the world's biggest maker of electric turbines and jet engines, posted profit of 38 cents per share, excluding one-time items, a penny above analysts' average estimate, according to Thomson Reuters I/B/E/S. It excludes 5 cents in charges from its former U.S. subprime mortgage unit and Japanese consumer finance business.
GE's report followed two days of stronger-than-expected earnings from other industrial companies, including Textron Inc and Honeywell International Inc, indicating multinational companies were finding a way to manage through a rough economy.
"GE had the perfect opportunity to bring expectations down and blame it on Europe and that would have been the tell-tale move that would have said, 'OK, GE is beginning to suffer here in this environment.' And they didn't do that," said Jack De Gan, chief investment officer at Harbor Advisory Corp in Portsmouth, New Hampshire.
GE shares rose 2.4 percent to $20.28 near midday on the New York Stock Exchange. As of Thursday's close, the stock was up about 10.8 percent so far this year, outpacing the 5.7 percent gain in the Dow Jones industrial average, of which the stock is the sole remaining original component.
The company has been cutting costs, particularly in Europe, by combining business units and reducing the number of executives and support staff needed.
"GE Capital led the way on this," by combining its consumer and commercial finance units in Europe, Sherin said. "We've consolidated different sub-business operations under one set of senior leaders."
GE VICE CHAIRMAN TO LEAVE
The company also said it will split up its $50 billion Energy Infrastructure unit, created in a 2008 restructuring, into three separate divisions, reporting directly to Immelt.
The restructuring, once complete, will cut annual expenses by $200 million to $300 million a year, executives said.
John Krenicki, a 50-year-old GE vice chairman who runs the division, plans to leave the company at the end of the year, GE officials said.
"We discussed him taking other roles within the company, subsequent roles within the company and I think his sense was it was time for him to think about other things he can do," Immelt said.
Many former GE executives have gone on to run other large public companies, including James McNerney, who now heads Boeing Co, and Joseph Hogan, who serves as CEO of Swiss engineering group ABB Ltd.
GE declined to make Krenicki available for an interview.
GE broke up the other big division that came out of the 2008 restructuring -- its Technology Infrastructure arm that included aviation, locomotives and healthcare equipment -- in 2010.
John Rice, the GE vice chairman who headed that unit, has moved to Hong Kong to oversee GE's foreign operations.
The energy arm, GE's largest industrial unit, was one of its strongest performers in the quarter, with profit jumping 13 percent on a 15 percent rise in sales.
GE has stepped up its presence in the energy sector over the past couple of years, making more than $11 billion in acquisitions and expanding beyond its historic core of making electricity-producing turbines to offer more equipment used in oil and gas production.
SALES SHY OF EXPECTATIONS
Sales rose 2.5 percent to $36.5 billion from $35.62 billion -- shy of Wall Street's expectation of $36.8 billion. The company noted that the strengthening dollar reduced revenue by $900 million in the quarter.
"Revenue was a little lighter than expected, even though earnings beat and they had a strong industrial business," said Cort Gwon, chief strategist at HudsonView Capital Management in New York.
The strongest revenue growth came at its transportation unit, which makes railroad locomotives, where sales rose 27 percent to $1.6 billion.
GE Capital revenue declined 8 percent to $11.5 billion, reflecting the company's continuing efforts to pare back the operation. The unit's profit rose 31 percent to $2.12 billion.
Analysts said the charges related to finance businesses that GE has since exited should remind investors that risks remain even as the GE Capital unit slims down and wins U.S. Federal Reserve approval to start returning some of its profit to the parent company.
"While these charges are in discontinued operations they should not be ignored. We think they are analogous to a warranty expense on a defective product," said Vertical Research Partners analyst Jeffrey Sprague.
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