General Electric Company — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021. GE is a global industrial company with Power, Renewable Energy, Aviation and Healthcare segments, plus GE Capital. Results are unaudited and are not necessarily indicative of full-year performance.
Key financial results
| Metric | Q1 2021 | Q1 2020 |
|---|---|---|
| Consolidated revenue | $17.1 billion | $19.5 billion |
| Continuing earnings attributable to GE common shareholders | $20 million; diluted EPS approximately $0.00 | $6.175 billion; diluted EPS $0.70 |
| Net loss attributable to GE common shareholders, including discontinued operations | $2.874 billion; diluted EPS $(0.33) | Net income $6.156 billion; diluted EPS $0.70 |
| GE Industrial profit (GAAP) | $378 million; 2.3% margin | $6.585 billion; 34.9% margin |
| Adjusted GE Industrial profit (non-GAAP) | $828 million; 5.1% margin | $1.032 billion; 5.5% margin |
| GE Industrial cash from operating activities | $(491) million | $(1.662) billion |
| GE Industrial free cash flow (non-GAAP) | $(845) million | $(2.207) billion |
| Consolidated borrowings | $71.4 billion | $74.9 billion at Dec. 31, 2020 |
At March 31, 2021, consolidated cash, cash equivalents and restricted cash were $31.8 billion, including $22.4 billion at GE Industrial and $9.4 billion at GE Capital. GE also had $20.2 billion of committed revolving credit facilities. GE Industrial net debt, a non-GAAP measure, was $32.3 billion, essentially unchanged from year-end. Total assets were $245.2 billion and total equity was $35.2 billion.
Segments and material period comparisons
- Aviation: Revenue fell 28% to $5.0 billion; segment profit decreased 36% to $641 million. Lower commercial engine shipments, spare-parts sales and shop visits reflected weak airline activity.
- Healthcare: Revenue fell 9% to $4.3 billion, partly reflecting the BioPharma disposition. Organic revenue increased 7% and organic profit increased 30%, with stronger demand and cost reductions.
- Power: Revenue declined 3% to $3.9 billion; the segment loss narrowed to $87 million, supported by Gas Power services growth and cost actions.
- Renewable Energy: Revenue rose 2% to $3.2 billion; the segment loss narrowed to $234 million, reflecting cost improvements and better project execution.
- GE Capital: Revenue increased 5% to $878 million and its segment loss narrowed 8% to $172 million, helped by lower insurance claims, improved investment performance and lower marks and impairments.
Consolidated revenue declined 12% year over year; GE Industrial organic revenue declined 10%. GE Industrial orders decreased 13% reported and 8% organically. Backlog was $383.4 billion, down 1% from year-end and 4% from a year earlier. GAAP continuing earnings and margin were sharply lower largely because Q1 2020 included a $12.3 billion pre-tax gain from the BioPharma sale. Comparisons also reflect a much smaller Baker Hughes investment loss in Q1 2021 than in Q1 2020. Adjusted GE Industrial organic profit increased 18%, while adjusted margin rose to 4.8% from 3.7%.
Transactions, outlook, risks and unusual items
- GECAS transaction: GE agreed to combine GE Capital Aviation Services with AerCap. Expected consideration comprises $23.9 billion cash, 111.5 million AerCap shares (about 46% ownership; valued at approximately $6.6 billion at the March 31 share price), and $1.0 billion in AerCap notes and/or cash. Closing remains subject to shareholder, regulatory and other approvals. GE recorded a $2.8 billion non-cash after-tax discontinued-operations charge; total discontinued-operations loss was $2.894 billion, including the disposal loss and operating results.
- COVID-19: GE said the pandemic continued to materially affect operations, especially Aviation and aircraft leasing. Global departures at March 31 were about 40% below Q1 2020. Management expected recovery to take multiple years and noted ongoing travel, supply-chain and demand uncertainty.
- Liquidity and capital allocation: GE targeted a sustainable long-term credit rating in the single-A range and GE Industrial net debt-to-EBITDA below 2.5x over the next few years. After the GECAS transaction, GE intended to use proceeds and existing cash to reduce debt. GE expected approximately $5.5 billion of additional insurance-subsidiary contributions through 2024; timing and amount could change following reserve testing or regulator action.
- Near-term cash flow: Most factoring programs were discontinued effective April 1, 2021. GE estimated an adverse impact of approximately $3.5–$4.0 billion on GE Industrial operating cash flow, primarily in Q2 2021; the company said this impact would be excluded from its non-GAAP free-cash-flow measure.
- Other exposures: GE cited Polish Bank BPH mortgage litigation, Alstom legacy legal matters, insurance reserve and funding needs, potential credit-rating downgrades, and risks to asset-sale timing and proceeds. The UK tax dispute could have an estimated impact of approximately $1.1 billion, excluding interest and penalties; GE is contesting it. Management stated that the Q1 controls evaluation found disclosure controls effective and no material change in internal control over financial reporting.
- Accounting change: GE said adoption of the new long-duration insurance accounting standard, effective in 2023, was expected to materially affect financial statements; the impact was still under evaluation.
Important facts for investors to verify
- Whether and when the AerCap transaction closes, final consideration and adjustments, and the value and eventual sale proceeds of GE’s retained AerCap stake.
- Underlying Aviation recovery, including air traffic, engine utilization, shop visits, cancellations, and segment margins.
- Cash generation after factoring-program exits, working-capital changes, and the company’s progress toward its leverage target.
- Insurance reserve adequacy and the timing and amount of required capital contributions, including any changes requested by regulators.
- Developments in Bank BPH and Alstom legal matters and the UK tax dispute, including potential losses beyond recorded reserves.
- How GAAP results compare with management’s non-GAAP measures; Q1 GAAP comparisons were materially affected by BioPharma, Baker Hughes valuation changes and the GECAS disposal charge.