General Electric Company — Q3 2021 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2021. GE is a global industrial company operating through Aviation, Healthcare, Renewable Energy, Power and Capital. Figures are U.S. dollars; financial statement amounts are generally in millions.
Key financial results
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Consolidated revenue | $18.4bn | $18.5bn | $53.8bn | $54.8bn |
| Continuing earnings (loss) attributable to GE common shareholders | $603m | $(1.13)bn | $(1)m | $3.86bn |
| Diluted continuing EPS | $0.54 | $(1.04) | $(0.01) | $3.39 |
| Net earnings (loss) attributable to GE common shareholders | $1.21bn | $(1.19)bn | $(2.86)bn | $2.79bn |
Q3 adjusted EPS, a non-GAAP measure, was $0.57 versus $0.38. GE Industrial GAAP profit was $894m, with a 5.0% margin; adjusted Industrial profit was $1.34bn, with a 7.5% margin. For the first nine months, Industrial GAAP profit was $1.05bn (2.0% margin), while adjusted profit was $3.10bn (6.0% margin).
- Segment Q3 revenue / profit (loss): Aviation $5.40bn / $846m; Healthcare $4.34bn / $704m; Renewable Energy $4.21bn / $(151)m; Power $4.03bn / $204m; Capital $734m / $(142)m.
- Cash flow: GE Industrial operating cash flow from continuing operations was $(832)m for nine months, versus $(3.18)bn in 2020. Industrial free cash flow, a non-GAAP measure, was $1.27bn versus $(3.76)bn; this measure excludes the $3.07bn cash impact attributed to discontinued factoring programs and $6m of taxes related to business sales.
- Liquidity and debt: Cash, cash equivalents and restricted cash were $25.0bn at September 30, compared with $36.5bn at year-end 2020; available revolving credit facilities totaled $14.5bn. Consolidated borrowings were $62.9bn, down from $74.9bn. GE Industrial net debt, a non-GAAP measure, was $31.3bn versus $32.3bn at year-end.
- Orders: Remaining performance obligations totaled $238.5bn, up 3% from year-end 2020 and 5% year over year.
Material changes versus comparable periods
- Q3 consolidated revenue was down about 1% year over year. Industrial organic revenue fell 1%; equipment was down 9% while services grew 7%.
- Q3 continuing earnings improved from a loss to a profit. Industrial profit rose $2.2bn, reflecting a $1.1bn year-over-year improvement in equity-security gains, better segment profit, the absence of prior-year Steam impairments, and lower benefit and interest costs. Adjusted Industrial organic profit increased $0.5bn.
- Nine-month continuing earnings fell sharply from 2020, primarily because the prior-year period included a $12.4bn BioPharma sale gain. 2021 results also included higher debt-extinguishment costs and a $3.6bn after-tax GECAS disposal loss in discontinued operations; improved Baker Hughes equity-security marks partly offset these items.
- GE completed $7.3bn of debt tenders in Q2, recording a $1.4bn pre-tax loss. Consolidated debt declined by $12.0bn from December 2020.
Outlook, management commentary and risks
- GE expects the GECAS combination with AerCap to close November 1, 2021, following final regulatory approvals received in October. Expected consideration is approximately $22.6bn cash, 111.5m AerCap shares (about 46% ownership) and $1bn in AerCap notes. GE plans to use transaction proceeds and existing cash to reduce debt; the value of the AerCap shares and resulting disposal impact can fluctuate.
- GE’s stated financial-policy targets include a sustainable long-term credit rating in the single-A range, Industrial net debt-to-EBITDA below 2.5x over the next few years, and a dividend in line with peers over time. The filing does not provide specific full-year 2021 earnings or revenue guidance.
- COVID-19 continues to weigh on operations, particularly Aviation. Global departures remained about 25% below Q3 2019, and management expects a multi-year recovery. Supply-chain delays and inflation are affecting businesses, with Healthcare reporting delayed conversion of orders to revenue.
- Renewable Energy cited U.S. production tax credit uncertainty, lower onshore repower activity, new-product margins and supply-chain costs. Power cited industry overcapacity, price pressure and uncertainty in project timing.
- Run-off insurance liabilities were $37.7bn. Annual premium-deficiency testing found an approximately 11% positive margin, up from less than 2% in the prior test; results depend on actuarial and investment assumptions. GE expects approximately $5.5bn of additional insurance capital contributions through 2024, subject to monitoring and possible changes.
- Legal and contingency exposures include Alstom legacy matters (reserve $653m) and Bank BPH foreign-currency mortgage litigation in Poland (estimated losses of $565m). The filing says additional losses could be material and that a meaningful range beyond recorded amounts cannot currently be estimated. Aviation also had $2.07bn of committed financing assistance for future customer aircraft acquisitions.
- Moody’s and Fitch ratings were Baa1/BBB, respectively, with negative outlooks; S&P was BBB+ with CreditWatch negative and expected a one-notch downgrade after the GECAS closing. GE reported that it met applicable revolving-credit covenant requirements.
Important facts for investors to verify
- Completion, final consideration and post-close debt reduction from the GECAS–AerCap transaction, including sensitivity to AerCap’s share price.
- Underlying operating cash generation after factoring discontinuation, working-capital movements and the distinction between GAAP cash flow and GE’s adjusted free-cash-flow measure.
- Whether Aviation’s recovery, Healthcare supply availability and Renewable Energy margins improve as management expects.
- Insurance reserve assumptions, future capital contributions and the effect of asset-allocation changes on earnings volatility.
- Developments in Bank BPH and Alstom legal matters, as well as credit-rating actions following the GECAS transaction.