GENERAL ELECTRIC CO quarterly report, Q2 FY2021

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GE 2021 Q2 Form 10-Q Summary

Reporting period: Quarter and six months ended June 30, 2021. GE is a global industrial company with Aviation, Healthcare, Renewable Energy and Power segments, plus GE Capital. Results are unaudited and generally reflect continuing operations unless noted.

Financial results and liquidity

  • Revenue: Q2 consolidated revenue was $18.3 billion, up 9% year over year; GE Industrial revenue rose 9% to $17.5 billion, while GE Capital revenue was approximately flat at $0.9 billion. First-half consolidated revenue was $35.4 billion, down 2%.
  • Earnings: Q2 loss from continuing operations attributable to GE common shareholders was $624 million, or $0.07 per share, compared with a $1.185 billion loss, or $0.15 per share, a year earlier. Adjusted EPS, a non-GAAP measure, was $0.05. First-half continuing loss attributable to common shareholders was $604 million, versus earnings of $4.989 billion in 2020; the prior-year period included a $12.3 billion BioPharma sale gain. First-half net loss attributable to common shareholders was $4.062 billion, including a $3.458 billion loss from discontinued operations.
  • Industrial profitability: Q2 GE Industrial GAAP profit was a loss of $224 million, with a 1.3% negative margin. Adjusted GE Industrial profit was $934 million, with a 5.3% margin. First-half adjusted industrial profit was $1.8 billion, versus $367 million in 2020; GAAP results were affected by the absence of the prior-year BioPharma gain and by debt-tender costs and equity-security gains.
  • Segments: Q2 revenue/profit was Aviation $4.8 billion/$176 million, Healthcare $4.5 billion/$801 million, Renewable Energy $4.0 billion/$(99) million, and Power $4.3 billion/$299 million. Aviation, Healthcare and Power improved from year-earlier results; Renewable Energy narrowed its loss but remained unprofitable.
  • Cash flow: First-half GE Industrial cash from operating activities was negative $2.5 billion, compared with negative $3.3 billion in 2020. GE Industrial free cash flow, a non-GAAP measure, was negative $457 million versus negative $4.275 billion. The reported FCF measure excludes the $2.706 billion Q2 cash-flow impact of discontinued factoring programs and certain business-sale taxes; the factoring change materially affected reported operating cash flow.
  • Debt and liquidity: Consolidated borrowings were $63.5 billion at June 30, down from $74.9 billion at year-end 2020. GE Industrial net debt, a non-GAAP measure, was $33.2 billion, up from $32.3 billion. Cash, cash equivalents and restricted cash totaled $22.5 billion; committed revolving credit facilities totaled $14.9 billion. GE’s ratings were Baa1/BBB+/BBB, with negative outlooks at Moody’s and Fitch and negative CreditWatch at S&P.
  • Other measures: Remaining performance obligations were $227.5 billion, down 1% from December 2020. Total assets were $237.6 billion and total equity was $35.0 billion at quarter-end.

Material changes and notable items

  • Q2 industrial revenue recovery reflected increased services and equipment sales, particularly in Aviation, Healthcare and Renewable Energy. First-half industrial organic revenue declined 2%, with Aviation and Power weaker and Healthcare and Renewable Energy stronger.
  • GE completed a Q2 debt tender repurchasing $7.3 billion of debt: $4.1 billion of GE Industrial and $3.2 billion of GE Capital debt. The tender generated $1.4 billion of pretax extinguishment losses, or $1.1 billion after tax.
  • GE discontinued most factoring programs effective April 1, 2021. Management estimated a $3.5–$4.0 billion adverse impact to 2021 GE Industrial operating cash flow from the change, including $2.7 billion in Q2.
  • GE agreed to combine GECAS with AerCap. Expected consideration is $23.9 billion in cash, 111.5 million AerCap shares (about 46% ownership; valued at approximately $5.7 billion at the June 30 share price), and $1 billion in AerCap notes and/or cash. The transaction remained subject to regulatory approvals and other closing conditions. GE recorded a $3.9 billion after-tax charge in discontinued operations in the first half, including $1.1 billion in Q2; the valuation is exposed to AerCap share-price movements.
  • Quarterly results were affected by volatile Baker Hughes equity marks: GE reported a $497 million Q2 gain on equity securities, versus $1.867 billion in Q2 2020. The first-half comparison also reflects the 2020 BioPharma disposal gain and changes in Baker Hughes marks.

Outlook, risks and contingencies

  • GE’s stated financial-policy aims include a sustainable long-term credit rating in the Single-A range, GE Industrial net debt-to-EBITDA below 2.5x over the next few years, and a dividend aligned with peers over time. Following the GECAS transaction, GE intends to use proceeds and existing cash to significantly reduce debt. The filing does not provide a clear numerical full-year earnings or revenue forecast in the supplied text.
  • Management expects COVID-19 impacts to continue, with Aviation the most affected. Global departures remained approximately 33% below Q2 2019; management described the commercial aviation recovery as potentially taking multiple years. Supply-chain challenges and inflationary pressures were also reported.
  • Renewable Energy continues to face market and pricing pressures, while Power cited industry overcapacity, service-price competition, uncertain project timing and energy-transition policy impacts. GE said underwriting discipline, cost reduction and execution remain priorities.
  • GE Capital expects to contribute approximately $5.5 billion more to insurance subsidiaries through 2024, subject to monitoring and possible changes in amount or timing. Management said additional GE Capital capital contributions in 2021 would depend on GECAS closing timing and performance.
  • Bank BPH’s Polish mortgage portfolio had a $1.991 billion carrying value and $490 million of estimated losses; further losses could be material, and GE said it could not meaningfully estimate potential losses beyond amounts recorded. A separate UK tax dispute could have an estimated impact of approximately $1.1 billion, excluding interest and penalties; GE is contesting the matter.
  • GE reported a $673 million remaining reserve for Alstom legacy legal and compliance matters and said additional losses could exceed the reserve, with no meaningful range estimable. Other disclosed risks include litigation, insurance reserve assumptions, credit ratings, aviation demand, market volatility and execution of asset dispositions.
  • A new accounting standard for long-duration insurance contracts, effective in 2023, is expected to materially affect GE’s financial statements, though GE was still evaluating the impact.

Important facts for investors to verify

  • Progress, regulatory approvals, final consideration and closing adjustments for the GECAS–AerCap transaction, including the value and eventual sale of GE’s AerCap stake.
  • Whether industrial cash generation improves after factoring-program changes, and how reported CFOA and non-GAAP FCF compare when the factoring impact is considered.
  • Continuing Aviation recovery, long-term service agreement estimates and customer-credit exposures; segment-level profitability at Renewable Energy and Power.
  • Debt reduction, net leverage, cash availability, credit-rating outlooks and planned GE Capital insurance contributions.
  • Changes in Bank BPH litigation estimates, the UK tax dispute, Alstom-related proceedings and other contingencies.
  • The effect of Baker Hughes share-price movements, discontinued-operations accounting and the 2023 insurance accounting standard on future reported results.