General Electric Company (now GE Aerospace) — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024; comparisons are with Q1 2023 unless noted. The quarter’s results include Aerospace, Renewable Energy, Power and Corporate. GE completed the tax-free spin-off of GE Vernova on April 2, 2024; Power, Renewable Energy and Digital are to be reported as discontinued operations beginning in Q2. GE now operates as GE Aerospace, with Commercial Engines and Services and Defense and Propulsion Technologies as its reportable segments.
Financial results and liquidity
| Metric | Q1 2024 | Prior period / change |
|---|---|---|
| Total revenue | $16.1 billion | $14.5 billion; up 11% |
| Continuing earnings attributable to GE common shareholders | $1.522 billion; diluted EPS $1.38 | $6.103 billion; diluted EPS $5.56 |
| Adjusted earnings / adjusted diluted EPS (non-GAAP) | $906 million / $0.82 | $296 million / $0.27 |
| GAAP profit margin | 11.6% | 44.8% |
| Adjusted profit / adjusted margin (non-GAAP) | $1.542 billion / 10.2% | $877 million / 6.4% |
| Cash from continuing operations | $1.024 billion | $155 million |
| Free cash flow (non-GAAP) | $850 million | $102 million |
| Cash, cash equivalents and restricted cash (balance sheet) | $18.447 billion | $16.967 billion at Dec. 31, 2023 |
| Total borrowings | $20.525 billion | $20.965 billion at Dec. 31, 2023 |
| Remaining performance obligations | $265.9 billion | $267.2 billion at Dec. 31, 2023 |
Equipment revenue was $5.935 billion and services revenue was $9.239 billion. RPO comprised $57.8 billion of equipment and $208.1 billion of services. Cash from operating activities and free cash flow increased year over year, supported by higher earnings after adjusting for non-cash investment gains and improved working-capital cash receipts; higher progress collections were a notable contributor. Capital expenditures were $421 million.
Segments and material changes
- Aerospace: Revenue rose 16% to $8.064 billion; segment profit rose 15% to $1.529 billion, with a 19.0% margin. Growth reflected stronger commercial spare-parts shipments, service work scopes, pricing and defense engine deliveries.
- Renewable Energy: Revenue rose 6% to $3.005 billion. Segment loss narrowed to $226 million from $414 million, and margin improved to negative 7.5% from negative 14.6%, aided by pricing and cost reductions.
- Power: Revenue rose 8% to $4.134 billion; segment profit increased to $229 million from $75 million, with margin improving to 5.5% from 2.0%. Higher gas-power services volume and pricing contributed.
- Profit comparison: Continuing earnings fell $4.6 billion, principally because gains on retained and sold ownership interests were $5.3 billion lower, largely related to GE HealthCare shares. Higher separation costs also reduced earnings. These effects more than offset stronger segment profit.
Adjusted organic profit increased to $1.581 billion from $1.023 billion, while adjusted organic profit margin increased to 10.5% from 7.5%. These are non-GAAP measures; the filing provides reconciliations.
Outlook, risks and unusual items
- Management estimated global commercial departures growth at high-single digits for 2024, citing Q1 growth and improving freight departures. It expects the gas-power market to remain stable over the next decade, with gas-power generation growing at a low-single-digit rate. The filing does not provide clear consolidated full-year earnings or revenue guidance.
- Inflation, supply constraints and supplier delivery delays are affecting production and conversion of RPO to revenue. Management cited productivity initiatives, supplier collaboration and pricing actions as mitigations. Aerospace is investing in manufacturing and supply-chain capacity and quality.
- Offshore Wind remains exposed to project-cost and execution pressure; adverse developments could further hurt contract profitability and cash collection timing. Renewable Energy’s segment loss improved but remained substantial.
- GE received $2.602 billion from selling 31.1 million GE HealthCare shares in Q1 and held 30.5 million shares (about 6.7%) at quarter-end, subject to a lock-up through May 15, 2024. Lower GE HealthCare-related gains were the main reason reported earnings declined.
- GE contributed a final $1.820 billion to its run-off insurance subsidiaries in Q1, bringing cumulative contributions under the referenced permitted practice to about $15.0 billion. Future adverse insurance assumptions could require further capital.
- After the GE Vernova separation, GE remains subject to certain credit support on Vernova’s behalf. At separation, related RPO and other obligations were estimated at about $37 billion; the filing says maximum aggregate exposure cannot be reasonably estimated. Separately identified financial guarantees were about $1.5 billion, and supply-chain-finance and environmental obligations had maximum aggregate exposure of $2.3 billion. Vernova is required to seek replacement or termination of support and indemnify GE for covered payments.
- Other noted exposures include Bank BPH foreign-currency mortgage litigation, with estimated total borrower-litigation losses of $2.517 billion; environmental, nuclear decommissioning and worker-exposure reserves of $2.537 billion; and unresolved legal matters for which the filing says a meaningful additional-loss estimate is generally unavailable. The Steam Power sale to EDF remained subject to approvals and other closing conditions.
- On March 7, 2024, GE announced a new $15 billion share-repurchase authorization, replacing the prior $3 billion authorization. A $0.28-per-share dividend was declared after quarter-end. The $10 billion revolving facility in place at March 31 was replaced in April with a five-year $3 billion facility.
Important facts for investors to verify
- How Q2 reporting reflects the GE Vernova separation, including discontinued-operations presentation, transferred benefit-plan liabilities and remaining guarantees or indemnities.
- Whether Aerospace can convert its large services RPO into revenue and cash despite supplier constraints, inflation and production-quality requirements.
- Progress in Renewable Energy loss reduction, especially Offshore Wind project execution and cash collection.
- Cash generation and capital allocation after the separation, including the effects of the smaller revolving facility, share repurchases and dividends.
- Developments in run-off insurance capital needs, Bank BPH litigation estimates, the EDF transaction and other legal and environmental contingencies.
- Reported versus adjusted earnings: Q1 GAAP results were materially affected by investment gains and separation costs; assess non-GAAP reconciliations when comparing periods.