GE 2022 Q1 Form 10-Q Summary
Reporting period: Three months ended March 31, 2022. GE is a global industrial company with Aviation, Healthcare, Renewable Energy and Power segments, plus corporate and run-off insurance activities. GE continued to pursue its plan to separate into three public companies focused on Aviation, Healthcare, and combined Renewable Energy, Power and Digital businesses.
Financial performance
| Metric | Q1 2022 | Q1 2021 |
|---|---|---|
| Total revenue | $17.0 billion | $17.1 billion |
| GAAP profit (loss) from continuing operations | $(525) million | $238 million |
| Continuing loss attributable to GE common shareholders | $(809) million; $(0.74) per share | $20 million; $0.02 per share |
| Net loss attributable to GE common shareholders, including discontinued operations | $(1.094) billion; $(0.99) per share | $(2.874) billion; $(2.61) per share |
| Adjusted earnings / adjusted EPS (non-GAAP) | $262 million / $0.24 | $142 million / $0.13 |
| Adjusted profit / margin (non-GAAP) | $946 million / 5.8% | $798 million / 4.9% |
| Cash from operating activities, continuing operations | $(535) million | $(2.640) billion |
| Free cash flow (non-GAAP) | $(880) million | $(3.361) billion |
Revenue was broadly flat; organic revenue rose 1%, with equipment organic revenue down 14% and services organic revenue up 15%. GAAP continuing results included an $824 million non-cash Steam business impairment, a $219 million reported loss on equity securities, $230 million of Russia- and Ukraine-related charges, and $119 million of separation costs. The year-over-year comparison also benefited from lower non-operating benefit costs and improved segment profit. Non-GAAP measures exclude specified items and should be considered alongside GAAP results.
Segments and material changes
- Aviation: Revenue increased 12% to $5.6 billion; segment profit rose 42% to $908 million and margin improved to 16.2% from 12.8%. Higher shop visits and spare-parts shipments supported results as commercial aviation recovered, while supply constraints and lower legacy-engine shipments weighed on equipment.
- Healthcare: Revenue increased 1% to $4.4 billion, while segment profit fell 23% to $538 million and margin declined to 12.3% from 16.2%. Inflation, logistics costs, supply constraints and COVID-19 impacts in parts of China pressured profitability.
- Renewable Energy: Revenue fell 12% to $2.9 billion; segment loss widened to $434 million from $234 million. Lower wind turbine deliveries, project delays, inflation and weaker margins contributed.
- Power: Revenue declined 11% to $3.5 billion, while segment profit improved to $63 million from a loss of $87 million, partly reflecting the absence of prior-year project and legal charges. The Steam Power business continued winding down new-build coal activity.
Total remaining performance obligations were $240.7 billion at March 31, up $0.9 billion from year-end, including $127.5 billion in Aviation. GE signed a non-binding agreement to sell part of Steam Power to EDF; the business was classified as held for sale. Closing was expected in the first half of 2023, subject to conditions, and GE expected a significant gain upon closing.
Cash, debt and liquidity
- Cash, cash equivalents and restricted cash on the balance sheet were $12.8 billion, versus $15.8 billion at year-end. The cash flow statement separately reported $14.3 billion at quarter-end, including discontinued operations; it reported $13.6 billion for continuing operations. These presentations differ in scope and classification.
- Total borrowings were $33.6 billion, down $1.6 billion from December 31, 2021. GE had $14.4 billion of committed revolving facilities, including an unused $10.0 billion syndicated facility, and reported compliance with the applicable net-debt-to-EBITDA covenant.
- Operating cash use and free cash flow use improved year over year, primarily because of lower net derivative collateral payments and other operating cash-flow changes. Working-capital cash use increased, including from receivables and inventory.
- GE reported $11.4 billion of capital contributions to insurance subsidiaries since 2018, including $2.0 billion in Q1, and expected approximately $3.6 billion of further contributions through 2024. Timing and amount remain subject to monitoring and reserve testing.
- Moody’s rated GE Baa1, S&P BBB+ and Fitch BBB for long-term debt; the disclosed outlooks were negative, CreditWatch negative and stable, respectively.
Outlook, risks and unusual items
GE did not provide a clear consolidated full-year earnings or revenue forecast in the supplied filing text. Management described continued supply-chain delays and inflation as constraints on revenue conversion and margins, with added uncertainty from the Russia-Ukraine conflict and COVID-19 impacts in China. Aviation said current trends were consistent with its recovery forecast and estimated single-aisle air traffic could return to 2019 levels in early 2023 and twin-aisle traffic in early 2024, subject to pandemic and travel conditions.
- The Board authorized up to $3 billion in share repurchases; none occurred during the quarter.
- GE expected approximately $2 billion of separation, transition and operational costs over the next two years, plus net tax costs of less than $0.5 billion, dependent on transaction specifics.
- The Bank BPH Polish mortgage portfolio generated a $233 million non-cash pre-tax discontinued-operations charge in Q1. Estimated losses related to borrower litigation and potential future cases were $920 million; further adverse legal or regulatory developments could result in additional losses or capital needs.
- GE disclosed continuing legal and regulatory exposures, including Alstom legacy matters with a $544 million reserve and shareholder litigation. The filing says a meaningful estimate of possible additional Alstom losses could not be developed.
- GE expects adoption of new long-duration insurance accounting guidance in 2023 to materially affect its financial statements; it anticipated a substantial reduction in shareholders’ equity at transition, primarily through AOCI.
- Other principal risks include inflation, supply-chain disruption, geopolitical and trade developments, market and credit-rating changes, execution of portfolio separations, insurance funding needs and litigation. GE stated its disclosure controls were effective at March 31, 2022.
Investor verification checklist
- Reconcile the different quarter-end cash figures by scope, including cash classified in discontinued operations and insurance activities.
- Track operating cash flow, working capital, free cash flow and the conversion of the $240.7 billion RPO balance into revenue.
- Assess the extent to which Aviation’s recovery offsets ongoing weakness and margin pressure in Renewable Energy and Healthcare.
- Monitor the EDF Steam transaction’s conditions, timing, held-for-sale accounting and expected gain, alongside separation costs and the planned company separations.
- Review exposure to Bank BPH litigation, Alstom matters, insurance capital contributions and the expected equity impact of the 2023 insurance accounting change.