GE reported a 7% increase in Industrial segment organic revenue* to $21.5 billion in the third quarter of 2019 and expanded its adjusted industrial profit margin* by 150 basis points to 10.0%. The company reported Industrial free cash flow* of $650 million and adjusted earnings per share* of $0.15 in the quarter.
The company increased its Industrial free cash flow* outlook for 2019 again, to $0 to $2 billion, up from its previous outlook of negative $1 billion to $1 billion, and reaffirmed its adjusted earnings per share* outlook for 2019 of $0.55 to $0.65.
“Our results reflect another quarter of progress in the transformation of GE,” said H. Lawrence Culp Jr., GE chairman and CEO. “I am encouraged by our strong backlog, organic revenue growth, operating margin expansion and positive industrial free cash flow performance amidst global macro uncertainty.”
The company ended the quarter with a strong backlog of $386 billion, up 14% year-over-year. Some 80% of the backlog consisted of services, an important profitability driver that allows GE to build long-term ties with its customers. The company also continued to improve its operations despite the global economic uncertainty, tariffs and other external events, like the continued grounding of the Boeing 737 MAX. CFM International, a 50-50 joint venture between GE Aviation and Safran Aircraft Engines, developed the LEAP engine for the 737 MAX and is the sole source engine supplier for that aircraft.
“We have more work to do, and we will continue to take actions to improve our financial position and strengthen our businesses as we prepare for 2020 and beyond,” Culp said. “I remain confident that we will unlock value for GE's stakeholders as our transformation accelerates.”
In September, GE reduced its majority stake in Baker Hughes to approximately 37%, resulting in $3 billion of net cash proceeds to GE. GE also recorded an $8.7 billion loss in discontinued operations from deconsolidating the segment.
GE also sold down the remainder of its common shares in Wabtec, which merged with GE Transportation in February 2019. The merger and subsequent spinoff resulted in $6 billion total net cash proceeds to GE in 2019.
The company began putting this cash to work to reduce its Industrial leverage, including completing a debt tender of about $5 billion and repaying a portion of the intercompany loans from GE Capital.
In the third quarter, GE also completed its annual GAAP test of reserves in its run-off Insurance operations. The exercise resulted in a pretax noncash charge of negative $1 billion. This was largely due to the impact of low interest rates on the discount rate, which was consistent with GE’s prior disclosures, and does not drive any cash funding from the company.
Leading technology to help customers win
Individual GE businesses continued to strengthen, despite the uncertain global economic environment. GE Power, which makes turbines, generators and other equipment for the power industry, received its 100th order for the record-breaking HA gas turbine. GE developed two models of the machine — the 7HA for markets like the U.S. at 60 hertz, and the 9HA for grids in Europe and elsewhere using 50 hertz. In 2016, the first power plant with a 9HA turbine in France set a Guinness World Record by clocking in at 62.22% net efficiency. Two years later, a 7HA turbine in Japan hit 63.08% gross efficiency.
GE Renewable Energy made headlines when a joint venture between the Norwegian energy giant Equinor and its U.K. counterpart, SSE, selected GE’s Haliade-X platform, a family of the world’s most powerful offshore wind turbines, for Dogger Bank, the world’s largest offshore wind development, located in the North Sea between the U.K. and Europe.
The project, consisting of three developments, will have a combined generation capacity of 3.6 gigawatts (GW). That’s enough to supply 4.5 million U.K. homes and cover about 5% of the country’s power demand. “We are excited to work with GE Renewable Energy to introduce the next-generation offshore wind turbine to the U.K. and be the first European wind farm to install and operate these innovative turbines,” said Bjørn Ivar Bergemo, Dogger Bank Wind Farms project director. The same turbines will also operate at two U.S. offshore wind farms that are being developed by the Danish offshore wind pioneer Ørsted.
GE Aviation’s technology helps customers break new ground. In October, a Qantas Boeing 787 Dreamliner powered by a pair of GEnx jet engines completed the longest nonstop commercial flight. The research flight from New York City to Sydney lasted 19 hours and 16 minutes.
In September, the Food and Drug Administration approved GE Healthcare’s Critical Care Suite, a collection of algorithms embedded in a mobile X-ray device, for use. This means doctors can begin working with the software in pilot tests. While radiologists can only carefully examine one X-ray image at a time, AI can help sort through hundreds of images in minutes and call attention to anything that looks suspicious. “From an engineering point of view, this is really exciting,” says Katelyn Nye, general manager of mobile radiology and AI at GE Healthcare. “We just passed a significant milestone which will begin to help technologists and radiologists do their jobs more efficiently.”
Top image: A joint venture between the Norwegian energy giant Equinor and its U.K. counterpart, SSE, selected GE’s Haliade-X platform, a family of the world’s most powerful offshore wind turbines, for Dogger Bank, the world’s largest offshore wind development, located in the North Sea between the U.K. and Europe. Image credit: GE Renewable Energy.
*Non-GAAP. The reasons we use these non-GAAP financial measures and the reconciliations to their most directly comparable GAAP financial measures are included in our quarterly report on Form 10-Q, our earnings release and the appendix of our investor presentation for the third quarter of 2019, as applicable.