GE 2022 Third-Quarter Form 10-Q Summary
Business context and reporting period
General Electric Company reported for the quarter and nine months ended September 30, 2022. GE operated through Aerospace, HealthCare, Renewable Energy and Power, with plans to separate its businesses into GE Aerospace, GE HealthCare and GE Vernova. Unless noted, financial amounts below are in U.S. dollars.
Financial results and liquidity
| Metric | Q3 2022 | Nine months 2022 |
|---|---|---|
| Revenue | $19.1 billion, up 3% year over year | $54.8 billion, up 2% |
| GAAP continuing earnings (loss) attributable to GE common shareholders | $(153) million; diluted EPS $(0.14) | $(1.6) billion; diluted EPS $(1.46) |
| Adjusted EPS (non-GAAP) | $0.35, versus $0.53 | $1.38, versus $0.89 |
| GAAP profit margin | (0.3)%, versus 3.1% | (1.5)%, versus (0.4)% |
| Adjusted profit margin (non-GAAP) | 5.8%, versus 7.4% | 7.0%, versus 5.9% |
| Cash from operating activities, continuing operations | Quarterly value not clearly provided | $1.3 billion, versus $(1.5) billion |
| Free cash flow (non-GAAP) | Quarterly value not clearly provided | $0.5 billion, versus $(1.8) billion |
Nine-month GAAP results included a $3.1 billion year-over-year swing in equity-security results, an $825 million Steam asset-sale impairment, $553 million of separation costs and $263 million of Russia- and Ukraine-related charges. Nine-month adjusted profit was $3.7 billion, up 21% organically; Q3 adjusted organic profit was $1.0 billion, down 20%.
Q3 segment results: Aerospace revenue was $6.7 billion (+24%) and profit $1.3 billion (+52%); HealthCare revenue was $4.6 billion (+6%) and profit $712 million (+1%); Renewable Energy revenue was $3.6 billion (−15%) and segment loss $934 million, versus a $151 million loss; Power revenue was $3.5 billion (−12%) and profit $141 million (−31%).
At September 30, cash, cash equivalents and restricted cash were $12.6 billion; borrowings were $30.4 billion, down $4.8 billion from year-end 2021. GE had $14.3 billion of committed revolving credit facilities and reported compliance with the applicable net-debt-to-EBITDA covenant. Total equity was $32.8 billion. GE repurchased $0.6 billion of common stock during the first nine months under a $3 billion authorization.
Material changes and management commentary
- Equipment revenue declined while services revenue grew: Q3 equipment revenue was down 9%, and services revenue was up 16% (organic growth of 20%). Aerospace services and HealthCare supported growth; fewer wind deliveries and lower Power equipment sales weighed on results.
- Aerospace benefited from commercial-market recovery, higher prices and increased shop visits. GE said global departures were about 85% of 2019 levels at quarter-end and forecast single- and twin-aisle traffic to return to 2019 levels in late 2023.
- Renewable Energy faced fewer Onshore Wind deliveries, inflation and lower near-term demand. GE recorded $0.5 billion of additional warranty and related reserves in Q3 for fleet repairs and corrective actions. The segment’s nine-month loss widened to $1.8 billion.
- Management cited supply-chain delays, material and logistics inflation, labor constraints, geopolitical uncertainty and COVID-19 impacts in China as pressures on delivery, RPO conversion and margins. GE reported approximately $240.8 billion of remaining performance obligations, up $0.9 billion from December 2021.
- GE expected to contribute approximately $3.6 billion more to insurance subsidiaries through 2024, in addition to $11.4 billion contributed since 2018. Contributions and timing could change based on reserve testing or regulatory action.
Outlook, transactions and risks
- No specific consolidated full-year revenue or EPS guidance is provided in the supplied filing text. Management’s outlook includes continued supply-chain and inflation pressures and a still-recovering commercial aviation market.
- GE expected total separation, transition and operational costs of approximately $2 billion, plus net tax costs below $0.5 billion, for the planned separations. It announced a roughly $0.6 billion multi-year restructuring program for planned GE Vernova businesses, with most costs expected in the first half of 2023. A further roughly $0.7 billion corporate restructuring was announced in October, with most costs expected in Q4 2022.
- A proposed sale of part of Steam Power to EDF was expected to close in the first half of 2023, subject to regulatory approval; GE said completion was expected to result in a significant gain. Gas Power’s proposed Nexus Controls acquisition was expected to close in Q2 2023, subject to customary conditions.
- GE’s planned adoption of long-duration insurance accounting guidance in 2023 was estimated to reduce equity by $7–8 billion at the January 1, 2021 transition date, after tax. GE said this would not change statutory insurance reserves, regulatory capital requirements or projected funding.
- In its run-off insurance business, GE recorded a $415 million pre-tax allowance increase related to a reinsurance recapture transaction; it expected to receive securities with estimated fair value of about $2.5 billion in Q4 2022. Annual premium-deficiency testing showed a positive margin of about 10% of related future policy benefit reserves.
- Bank BPH’s Polish foreign-currency mortgage portfolio had a $1.276 billion carrying value net of reserves; estimated losses were $1.117 billion. GE warned that further litigation or adverse decisions could cause additional losses or capital contributions, with no meaningful estimate of additional possible losses.
- GE maintained a $492 million reserve for Alstom legacy legal and compliance matters and said additional losses could exceed that reserve. Other reported proceedings include shareholder litigation and an environmental matter in Israel involving a proposed fine of approximately $0.6 million.
Important facts for investors to verify
- Reconcile GAAP losses with adjusted EPS and profit, including the exclusions used in GE’s non-GAAP measures.
- Track Renewable Energy warranty costs, fleet availability, delivery volumes, pricing and restructuring execution.
- Monitor operating cash flow, working-capital requirements, RPO conversion and the effects of supplier financing programs.
- Confirm the timing, conditions and costs of the HealthCare and Vernova separations, the EDF sale and related restructuring.
- Assess future insurance capital contributions, the reinsurance recapture, accounting-adoption effects and Bank BPH litigation exposure.
- Review debt, available liquidity and credit-rating developments; GE disclosed negative outlooks from Moody’s and Fitch and a negative CreditWatch from S&P.