Reporting GE’s results for 2020 and the fourth quarter today, the company’s chairman and CEO, Larry Culp, told investors that it was hard to think of a tougher year: “Certainly not one any of us will ever forget for its challenges, but even more so, how the world rose to meet them,” he said. He stressed that he was proud of the way GE “persevered in the face of great uncertainty,” did what it needed to do and, as a result, was “set up well for the year ahead.”
Top on the priority list was industrial free cash flow*, which GE reported at $4.4 billion for the quarter, a half-billion more than in 2019, and $0.6 billion for the year. Culp said the result reflected improving operations and strong and improving orders at GE’s Power businesses and GE Renewable Energy, as well as some seasonal tailwinds. He said the result was all the more important given that in 2019 GE received a lift from strong results in GE Aviation, which has been facing challenging market conditions from the pandemic, and its BioPharma business, which the company sold to Danaher in March 2020.
Orders were down 3% in the quarter, but Culp noted that this was a considerable improvement from the second and third quarters. “In three of our four segments, orders were up. Notably, equipment orders at Renewables and Power were up double digits,” he said. “For the year, orders were down 17% with 95% of this pressure driven by Aviation.”
Despite the pressure, GE ended the year with a backlog of $387 billion with approximately 80% geared toward services where the company enjoys strong margins.
Culp said as the year progressed, GE's profitability and cash performance steadily improved “despite a still-difficult macro environment. We’re encouraged by the significant free cash flow growth this quarter,” he said.
Culp said that GE businesses are getting stronger and focusing on what matters most, like “protecting the safety of our employees and taking care of our customers and communities” and remaining focused on what GE could control. This included hiring new leaders and also taking more than $2 billion of cost and $3 billion of cash actions to enable strong free cash flow generation.
The company finished the year with $37 billion in liquidity. It reduced its debt by $16 billion in 2020 and by $30 billion over the last two years.
Business and financial strength were tied to a third element driving the company forward — its stated purpose of rising to the challenge of building a world that works. “We’re leading in some of the world’s most important markets — the energy transition, precision health and the future of flight — and we’re passionate about delivering for our customers and tackling the world’s biggest problems,” Culp said.
Culp pointed to products like GE Healthcare’s Mural Virtual Care Solution, which allows doctors and nurses to monitor the near real-time status of numerous intensive-care patients in one place. The technology can be adjusted to focus on the most critical COVID-19 metrics, like vital signs and ventilator data. The same GE business also acquired Prismatic Sensors AB, whose photon-counting technology promises a huge leap forward in the quality of images that computed tomography scanners can capture. GE also won regulatory approvals for the Haliade-X, the most powerful offshore wind turbine in operation, and the GE9X, the world’s most powerful jet engine. “None of this is possible without our ongoing commitment to investing in innovation,” he said.
The common factor underlying GE’s momentum and growth is lean management, the business strategy that revolves around kaizen, the Japanese term for continuous improvement. GE opened a Kaizen Promotion Office responsible for scaling lean across the company “with an eye toward operational and financial impact through safety, quality, delivery and cost improvements,” Culp said. The approach has improved operations and slashed inventory by millions of dollars at GE Power, GE Aviation, GE Renewable Energy and GE Healthcare. Culp called out GE’s grid business, which used lean to reduce quality defects by 25% and generate savings that enabled the business to grow operating profit by 60% in 2020.
The approach is also delivering results for GE customers. Pat Byrne, who runs GE Digital and serves as GE senior vice president responsible for operations, and his team have been developing with GE Renewable Energy a digital system for wind turbine operators to fill a critical need during the pandemic when many people work remotely. They are also automating processes, such as turbine inspections, with digital technologies to improve safety as well as reduce time and waste.
“I am proud of the GE team and their remarkable resilience,” Culp said. “I hope you can see that in the face of great uncertainty, we continued to strengthen our businesses and deliver for our customers. ... Momentum is growing across our businesses. We’ve continued to evolve our culture and embrace lean, while preserving the strengths that have defined GE throughout its history. ... As our multiyear transformation accelerates, we will unlock upside potential with better cash generation, profit and growth.”
*Non-GAAP Financial Measure. The reasons we use these non-GAAP financial measures and the reconciliations to their most directly comparable GAAP financial measures can be found within GE’s fourth-quarter 2020 earnings materials posted to ge.com/investor.
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