Dear Investor,
GE released its third quarter 2021 results today, and I encourage you to read the full materials and listen to our earnings call at 8:00 AM ET.
Key highlights on GE’s financial performance this quarter:
- Total orders $22.1B, +42%; organic orders +42%
- Total revenues (GAAP) $18.4B, (1)%; Industrial organic revenues* $17.6B, (1)%
- Industrial profit margin (GAAP) of 5.0%, +1,220 bps; adjusted Industrial profit margin* 7.5%, +270 bps
- Continuing EPS (GAAP) of $0.54, +$1.58; adjusted EPS* 0.57, +$0.19
- GE Industrial CFOA (GAAP) $1.7B, +$1.6B; GE Industrial free cash flow* $1.7B, +$1.8B, excluding discontinued factoring programs*
- Updating 2021 outlook for Industrial organic revenue* growth to approximately flat, adjusted Industrial profit margin* expansion to 350+ basis points, adjusted EPS* to $1.80 - $2.10, Industrial free cash flow* to $3.75B-$4.75B
GE Chairman and CEO Larry Culp said, “The GE team delivered another strong quarter. Orders grew, margins expanded, our overall cash performance was significantly better, and Aviation is building momentum and showing continued signs of recovery. The teams are managing through a challenging operating environment, including global supply chain disruptions and onshore wind market pressure due to the U.S. Production Tax Credit. Against that backdrop, we’re raising our 2021 EPS expectations and narrowing our full-year free cash flow outlook."
Overall, GE delivered continued strong performance. At Aviation, as shop visits continue to recover, we are on track to achieve our low double-digit margin guide for the year. In Healthcare, double-digit orders growth was driven by strong demand while global supply constraints pressured revenue and higher inflation and lower LCS equipment revenue impacted margin expansion. We expect this supply chain pressure to continue in 4Q and ’22, and now expect organic margins* to expand close to 100 bps for ’21. At Renewable Energy, orders were a record, but margins contracted driven by Onshore Wind. We are now expecting Renewable Energy FCF* to be down and negative for the year due to the Production Tax Credit (PTC) pressure. Power is performing well as the team executes operational improvements, and we are now expecting Gas Power Services to achieve high-single-digit growth this year. We remain on track with the continued exit of new build coal in Steam Power. Lastly, we are now expecting adjusted Corporate costs* to be ~$1B for the year.
We’re encouraged by our continued cash improvement. We generated $1.7B of FCF*, up $1.8B (ex-discontinued factoring programs*) year-over-year. Our Industrial FCF* growth was largely driven by better earnings, continued working capital improvements, as well as favorable timing impact from aircraft delivery delays (AD&A) in Aviation. We also completed our annual Insurance premium deficiency test with no impact to earnings.
We expect revenue growth, margin expansion, and higher free cash flow* in 2022, and will provide more detail during fourth quarter earnings and 2022 Outlook.
Our transformation to a more focused, simpler, and stronger high-tech industrial company is accelerating. Last week, GE and AerCap satisfied all required regulatory clearances for the GECAS transaction and we expect to close the transaction on November 1, 2021, subject to other customary closing conditions. Proceeds will be used to further reduce our debt with the total reduction now expected to reach ~$75B since the end of 2018.
The progress we’ve made has positioned us to play offense with our customers in mind. We’re doing this through commercial wins and services, new product introductions, and future technology innovation, complemented by inorganic growth, such as our recently announced acquisition of BK Medical. Across GE, we investing in the future of flight, with the first flight of the CatalystTM engine, precision health with the introduction of Edison True Picture Archive and Communication System (PACS), and the energy transition, with Renewable Energy’s Haliade-X prototype, which began operating at 14MW, and Power’s deployment of aeroderivatives to support California’s emergency power needs.
We appreciate your continued interest in GE, and please take care.
Best,
Steve
For important information about forward-looking statements, please see here.
*Non-GAAP Financial Measure.