General Electric Company (GE) — Form 10-Q Summary
Reporting period: Quarter ended September 30, 2023; comparisons are with the quarter or nine months ended September 30, 2022, unless noted. GE’s continuing operations comprised Aerospace, Renewable Energy and Power. GE completed the spin-off of GE HealthCare on January 3, 2023; its results are reported as discontinued operations. GE planned to combine Renewable Energy and Power as GE Vernova.
Key financial results
| Metric | Q3 2023 | Prior comparable period | Nine months 2023 | Prior comparable period |
|---|---|---|---|---|
| Revenue | $17.35 billion | $14.47 billion | $48.53 billion | $41.27 billion |
| Continuing earnings attributable to GE common shareholders | $84 million; diluted EPS $0.08 | Loss of $316 million; EPS loss $0.29 | $7.18 billion; diluted EPS $6.54 | Loss of $2.79 billion; EPS loss $2.54 |
| GAAP profit margin | 1.7% | (1.6)% | 16.9% | (5.8)% |
| Adjusted EPS (non-GAAP) | $0.82 | Loss of $0.17 | $1.77 | $0.09 |
| Cash from operating activities (continuing operations) | Quarterly amount not stated in the supplied filing text | $2.35 billion | $379 million | |
| Free cash flow (non-GAAP) | Quarterly amount not stated in the supplied filing text | $2.19 billion | Use of $279 million |
Q3 adjusted profit was $1.62 billion and adjusted margin was 9.8%, compared with $359 million and 2.6% a year earlier. These are non-GAAP measures; GE excludes items including insurance results, investment gains and losses, separation costs, restructuring, interest and non-operating benefit income from specified adjusted measures.
Segments
- Aerospace: Q3 revenue rose 25% to $8.41 billion; segment profit rose 33% to $1.71 billion, with a 20.4% margin versus 19.1%. Services represented 73% of Q3 segment revenue. Commercial aviation demand and higher spare-parts shipments and pricing supported results.
- Renewable Energy: Q3 revenue rose 15% to $4.15 billion. Segment loss narrowed to $317 million from $934 million; margin improved to (7.6)% from (26.0)%. Improvement included the absence of a prior-year $0.5 billion warranty-related charge, better Onshore Wind pricing and cost actions, partly offset by Offshore Wind ramp-up and project losses.
- Power: Q3 revenue rose 13% to $3.97 billion; segment profit rose to $238 million from $141 million, and margin increased to 6.0% from 4.0%. Higher Gas Power equipment pricing and project scope were key contributors.
Liquidity, debt and other metrics
- At September 30, 2023, cash, cash equivalents and restricted cash were $13.1 billion. GE reported $13.5 billion of committed revolving credit facilities, including a $10.0 billion unused syndicated facility.
- Total borrowings were $20.8 billion, down from $24.1 billion at December 31, 2022, primarily due to $3.2 billion of net debt maturities and repayments. GE reported that it met the financial covenant on applicable revolving facilities.
- Total remaining performance obligations were $253.1 billion, up 6% from December 31, 2022: $53.3 billion equipment and $199.8 billion services.
- GE received approximately $4.6 billion from AerCap share sales and $2.2 billion from GE HealthCare share sales in the first nine months. It retained approximately 14.5% of AerCap and 13.5% of GE HealthCare at quarter-end. GE completed monetization of its Baker Hughes position.
- GE redeemed its remaining preferred stock during Q3, paying $2.8 billion in the quarter and $5.8 billion in the first nine months. It repurchased $253 million of common stock in Q3 under its $3 billion authorization.
Material changes, outlook and risks
- Revenue increased 20% in Q3, with organic revenue up 18%; equipment and services both grew. Segment profit increased by $1.1 billion overall, while Q3 continuing earnings were substantially offset by $1.0 billion of higher losses on retained and sold ownership interests, mainly GE HealthCare and AerCap.
- Nine-month continuing earnings improved sharply, but results included $5.2 billion of gains on retained and sold ownership interests, compared with $1.9 billion of losses in the prior-year period. Therefore, reported GAAP earnings growth does not solely reflect operating performance.
- Management cited inflation, supply-chain delays, materials availability and skilled-labor shortages as pressures on margins and the conversion of orders to revenue. GE described actions including supplier coordination, pricing, productivity initiatives and restructuring. It did not provide a clear company-wide numeric financial guidance range in the supplied filing text.
- Renewable Energy remains exposed to Onshore Wind quality and fleet-availability work and Offshore Wind cost-estimate, delivery-schedule and production-ramp challenges that could cause further losses. GE said the Inflation Reduction Act is benefiting qualifying U.S. Onshore Wind products. Power described a stable gas-power market outlook over the next decade, with low-single-digit growth in gas generation.
- GE expected to complete the sale of part of Steam Power to EDF in Q4 2023, subject to approvals and customary conditions; closing was expected to result in a significant gain. It also agreed to sell Electric Insurance Company, targeting the first half of 2024; GE recorded a $109 million loss related to the expected sale in the first nine months.
- GE expected a final insurance-subsidiary capital contribution of up to $1.8 billion in Q1 2024, subject to completion of year-end statutory reporting. Ratings were Moody’s Baa1, S&P BBB+ and Fitch BBB; Moody’s outlook was negative, while S&P and Fitch outlooks were stable.
- Bank BPH, reported in discontinued operations, had estimated total borrower-litigation losses of $2.52 billion at September 30, 2023, up from $1.36 billion at year-end 2022. GE warned adverse developments could increase the estimate and potentially require future cash contributions.
- Other contingencies include $416 million of reserves for Alstom legacy legal and compliance matters; GE said additional losses beyond that reserve could not be meaningfully estimated. GE also disclosed a $61 million settlement of a retirement-plan class action, preliminarily approved by the court in October 2023.
Important facts for investors to verify
- Reconcile reported earnings with adjusted earnings and assess the effects of volatile GE HealthCare and AerCap investment marks and sales.
- Track Aerospace demand and supply constraints, and whether Renewable Energy improves execution, quality, costs and profitability—particularly in Offshore Wind.
- Monitor cash conversion, working capital, inventory growth, capital spending and the sustainability of free cash flow, including its non-GAAP definition and exclusions.
- Confirm the timing and economics of the EDF and Electric Insurance sales, planned GE Vernova separation, and the remaining AerCap and GE HealthCare stake disposals.
- Review Bank BPH litigation estimates and potential capital needs, insurance reserve assumptions, and material legal or regulatory developments.
- Assess liquidity and refinancing needs alongside credit ratings, rating-related liquidity triggers, and the planned insurance capital contribution.