GE 2020 First-Quarter 10-Q Summary
Reporting period: Three months ended March 31, 2020. General Electric operates in Power, Renewable Energy, Aviation, Healthcare and Capital. Comparatives are for the three months ended March 31, 2019, unless otherwise stated. Dollar amounts are in U.S. billions unless noted.
Financial results and key metrics
| Metric | Q1 2020 | Q1 2019 / comparison |
|---|---|---|
| Consolidated revenue | $20.5 | $22.2; down 8% |
| Continuing earnings attributable to GE common shareholders | $6.332 | $0.920 |
| Diluted continuing EPS | $0.72 | $0.10 |
| Adjusted earnings / adjusted EPS (non-GAAP) | $0.418 / $0.05 | $1.177 / $0.13 |
| GE cash from operating activities, continuing operations | $(1.662) | $(0.607) |
| GE Industrial free cash flow (non-GAAP) | $(2.207) | $(1.216) |
| Consolidated cash, cash equivalents and restricted cash | $47.3 at March 31 | $36.4 at December 31, 2019 |
| Consolidated borrowings | $85.2 at March 31 | $90.9 at December 31, 2019 |
| GE Industrial net debt (non-GAAP) | $34.0 at March 31 | $47.9 at December 31, 2019 |
GAAP continuing earnings included a $12.3 billion pretax BioPharma sale gain and a $5.7 billion pretax unrealized loss on GE’s Baker Hughes investment. Accordingly, reported earnings and the 34.9% GE Industrial profit margin are not representative of underlying operating performance. Adjusted GE Industrial profit was $1.1 billion, down 47% organically, and adjusted margin was 5.7% versus 10.2%.
GE reported $47.3 billion of consolidated cash, including $33.8 billion at GE and $13.5 billion at GE Capital. GE Industrial net debt and adjusted results are non-GAAP measures; consult the filing’s reconciliations and definitions. The declared common dividend was $0.01 per share.
Material changes and business developments
- BioPharma sale: GE completed the sale to Danaher on March 31 for $21.1 billion in consideration, including $20.7 billion cash and $0.4 billion of pension liabilities assumed. GE recorded an $11.1 billion after-tax gain; $20.3 billion of net cash proceeds were received by quarter-end, with an additional $0.4 billion received April 1.
- Baker Hughes: GE recorded a $5.7 billion pretax unrealized loss on its remaining investment, valued at $4.1 billion at March 31, based on a share price of $10.50.
- Orders and backlog: GE Industrial orders fell 5% reported and 3% organically. GE Industrial backlog was $401.1 billion, down 1% from year-end but up 14% from a year earlier, including a substantial increase in Aviation services backlog.
- Segment results: Revenue was $6.9 billion at Aviation (down 13%), $4.0 billion at Power (down 13%), $3.2 billion at Renewable Energy (up 26%), and $4.7 billion at Healthcare (roughly flat). Segment profit was $1.0 billion at Aviation, $(0.1) billion at Power, $(0.3) billion at Renewable Energy and $0.9 billion at Healthcare. Healthcare results included BioPharma through the sale date.
- Debt and liquidity: Borrowings declined from year-end, primarily due to GE Capital debt repayments and lower commercial paper. The BioPharma proceeds materially increased GE’s cash position.
Outlook, management commentary and risks
- COVID-19: GE said the pandemic began materially affecting operations late in the quarter, especially Aviation and GECAS. Management estimated first-quarter impacts of about $1 billion on GE cash from operating activities and Industrial free cash flow, $0.8 billion on GE Industrial profit, and $0.1 billion on GE Capital earnings. GE could not forecast the pandemic’s full duration, severity or recovery path.
- Cost and cash actions: GE targeted more than $2 billion of operational cost reductions and more than $3 billion of cash-preservation actions in 2020, including more than $1 billion and $2 billion, respectively, in Aviation. Actions included workforce reductions, furloughs, hiring freezes and discretionary-spending cuts.
- Aviation and GECAS exposure: Reduced air travel weakened demand for higher-margin commercial services; airline customers sought rent deferrals and lease modifications. GECAS had received deferral requests from approximately 75% of airline customers. Further impairment, credit-loss or contract adjustments could be material.
- 737 MAX: GE reported approximately $2.5 billion of net assets related to the program and recorded no impairment at March 31, stating it believed the assets were recoverable. In April, GECAS restructured its Boeing orderbook, canceling 69 orders and leaving 82.
- Capital policy and ratings: GE said it expected to reach prior deleveraging targets over a longer period than previously planned. Moody’s and S&P changed GE and GE Capital outlooks to negative in April; Fitch lowered ratings to BBB/F3 with a stable outlook. GE reported $35.3 billion of net available revolving credit facilities at quarter-end; it subsequently replaced its $20 billion backup facility with a $15 billion facility expiring in 2023.
- Insurance, pensions and legal matters: GE Capital expects approximately $7 billion of further insurance-subsidiary capital contributions through 2024, subject to monitoring and potential changes. Market volatility may affect future insurance reserves and pension funded status; those balances were not remeasured for quarter-end market moves. The filing also discusses Polish mortgage litigation, legacy Alstom matters and other proceedings; meaningful loss estimates are not available for certain matters.
Important facts for investors to verify
- Reconcile reported earnings and EPS to adjusted earnings and EPS, especially the BioPharma gain and Baker Hughes valuation loss.
- Track operating cash generation, working-capital needs and the sustainability of cash after the BioPharma proceeds are used.
- Monitor Aviation services demand, airline payment deferrals, GECAS lease collections and aircraft impairment assumptions.
- Assess leverage reduction, debt maturities, credit ratings and actual availability of committed credit facilities.
- Review potential changes to insurance and pension assumptions, future capital contributions, and material litigation or 737 MAX exposures.
- Confirm how much of the backlog is cancelable and when it is expected to convert to revenue and cash; reported backlog includes cancellable commitments.