GE 2022 Q2 Form 10-Q Summary
Reporting period: Quarter and six months ended June 30, 2022. Amounts are U.S. dollars unless noted. GE reported four segments: Aerospace, HealthCare, Renewable Energy and Power. It continued planning to separate into three public companies, later branded GE Aerospace, GE HealthCare and GE Vernova.
Financial performance and position
| Metric | Q2 2022 | Six months 2022 | Comparison |
|---|---|---|---|
| Revenue | $18.6B | $35.7B | Up 2% and 1%, respectively |
| GAAP continuing loss attributable to GE common shareholders | $647M; diluted EPS $(0.59) | $1.456B; diluted EPS $(1.33) | Quarter loss slightly wider; half-year loss materially wider |
| Adjusted EPS (non-GAAP) | $0.78 | $1.02 | Up from $0.22 and $0.35 |
| Adjusted profit margin (non-GAAP) | 9.3% | 7.6% | Up 4.0 and 2.5 percentage points |
| Cash from operating activities, continuing operations | Not reported separately for the quarter | $(27)M | Compared with $(2.991)B |
| Free cash flow (non-GAAP) | Not reported separately for the quarter | $(718)M | Compared with $(3.162)B |
Six-month GAAP net loss attributable to GE common shareholders was $1.952B, including a $496M loss from discontinued operations. Q2 net loss attributable to common shareholders was $857M, including a $210M discontinued-operations loss.
At June 30, cash, cash equivalents and restricted cash were $13.2B; total borrowings were $32.5B, down $2.7B from year-end 2021. GE had $14.4B of committed revolving credit facilities, including a $10.0B unused syndicated facility. Total assets were $185.5B, total liabilities $149.6B and total equity $35.9B. Six-month capital expenditures and internal-use software additions totaled approximately $708M.
Remaining performance obligations were $242.0B, up $2.2B from December 2021, comprising $44.8B equipment and $197.2B services. GE received $3.8B from sales of retained ownership interests, primarily Baker Hughes-related, during the first half. It also made a $2.0B first-quarter contribution to insurance subsidiaries and repurchased $334M of shares in Q2.
Segment results and period changes
| Segment | Q2 revenue | Q2 segment profit (loss) | Key year-over-year change |
|---|---|---|---|
| Aerospace | $6.1B, +27% | $1.15B, versus $176M | Recovery in commercial services, shop visits and spare-parts demand supported results; supply constraints weighed on engine production. |
| HealthCare | $4.5B, +1% | $651M, down 19% | Revenue grew, but inflation and logistics costs reduced profit; China COVID-related disruption constrained factory output. |
| Renewable Energy | $3.1B, down 23% | $(419)M, versus $(99)M | Fewer Onshore Wind deliveries, lower U.S. volume and margins, and cost inflation drove weaker results. |
| Power | $4.2B, down 2% | $320M, up 7% | Higher Gas Power aeroderivative deliveries and transactional services helped offset lower Steam Power activity. |
Organic revenue (non-GAAP) increased 5% in Q2 and 3% for the first half. Services organic revenue rose 15% in both periods, while equipment organic revenue declined 6% in Q2 and 10% year to date. Adjusted organic profit rose 79% in Q2 and 53% for the first half, with Aerospace providing the main increase; Renewable Energy and HealthCare were weaker.
Outlook, risks and unusual items
- Management said inflation, supply-chain constraints and delays in sourcing materials were delaying conversion of orders to revenue and pressuring margins. GE also cited Russia-Ukraine-related uncertainty and COVID-19 impacts in China. The filing does not provide a clear company-wide numerical earnings or cash-flow forecast.
- Aerospace management described commercial aviation as recovering, with global departures around 80% of 2019 levels at June 30. GE estimated single-aisle traffic could recover to 2019 levels in early 2023 and twin-aisle traffic in early 2024, while noting supply and labor constraints.
- Renewable Energy faced weak near-term U.S. wind demand, uncertainty around tax-credit policy, inflation and project delays. Management emphasized pricing, cost reductions, selectivity and product execution.
- GE recorded a $2.0B Q2 net loss on equity securities versus a prior-year gain; the first-half loss was $2.6B. These valuation changes were a major drag on GAAP results. First-half results also included an $825M Steam business impairment, $327M of separation costs and $230M of Russia- and Ukraine-related charges.
- GE expects approximately $2B of separation, transition and operational costs over the next two years, plus net tax costs below $0.5B, subject to transaction details. The proposed EDF sale of part of Steam Power was expected to close in the first half of 2023, subject to regulatory approval; GE expected a significant gain on closing.
- GE expected to contribute approximately $3.6B more to insurance subsidiaries through 2024; timing and amount could change based on reserve testing or regulator action. A new long-duration insurance accounting standard was expected to reduce transition-date shareholders’ equity by an estimated after-tax $7B–$8B, with no expected change to statutory reserves, regulatory capital requirements or projected funding.
- Bank BPH’s Polish mortgage portfolio had a $1.4B carrying value and an estimated $1.047B of losses associated with current and potential litigation. GE warned that adverse court or regulatory developments could require further losses or capital contributions. GE also reported $530M of reserves for Alstom legacy legal and compliance matters and said additional losses could exceed reserves.
- Credit ratings were Moody’s Baa1 (negative outlook), S&P BBB+ (CreditWatch negative) and Fitch BBB (stable). GE said it met the covenant on its revolving facilities. Management stated consolidated liquidity and facility availability were expected to meet needs under normal and stressed conditions.
Important facts for investors to verify
- Reconcile GAAP losses with adjusted earnings and assess the recurring versus mark-to-market and separation-related components.
- Track operating cash flow, free cash flow, working-capital absorption, and whether supply constraints allow GE to convert its $242.0B RPO into revenue.
- Monitor Renewable Energy losses, delivery volumes, pricing, cost actions and the effect of U.S. tax-credit policy.
- Verify progress, costs, timing and regulatory conditions for the planned company separations and the EDF Steam Power transaction.
- Follow insurance funding needs, Bank BPH litigation estimates, Alstom matters, and credit-rating outlooks for potential effects on liquidity and capital.