Presenting GE’s second quarter results, Larry Culp, CEO of GE and CEO of GE Aerospace, said, “The GE team delivered a strong quarter, with growth in orders, revenues and profits, as well as positive free cash flow. Aerospace was a key driver and services remained a positive performance point. While this remains the toughest operating environment I’ve seen, I’m proud of how the GE team is taking steps to handle the ongoing pressures.
Culp noted that orders were up 4% organically year-over-year, driven by 26% order growth in GE’s aerospace business.
Revenue increased 5% organically*, with growth in three of the company’s four segments. Aerospace recorded double-digit growth as the market recovery continued, and healthcare and energy recorded single-digit growth. These gains were partially offset by renewables, down double-digits, reflecting lower volume in the US resulting from the expiration of the PTC, as well as the company’s strategy of international selectivity.
GE’s adjusted profit margin increased 380 basis points organically*. The improvement was “largely due to higher growth in services and a focus on pricing, with aerospace and energy being a source of strength,” Culp said. “HealthCare is stabilizing but still faces supply chain pressures, and renewables remain struggling.”
Adjusted EPS* is up sharply, mainly driven by Aerospace.
Free cash flow* was $200 million, up slightly from a year ago, Culp said, “due to better adjusted earnings. This was offset by higher working capital related to building inventory as we prepare for the second half ramp, as well as supply chain challenges.
Overall, it was a strong quarter for GE, with growing orders, revenue, profit and cash.
Despite these results and progress, Culp shared that “much is still uncertain about the external pressures businesses are facing right now.”
He said GE continues to trend down our 2022 outlook on all metrics except cash. Working capital will be pressured as we shield customers from the impact of supply chain challenges as well as the timing of renewable energy orders, which together are expected to drive approximately $1 billion in cash flow. cash available in the future. A temporal dynamic is therefore at play.
Looking to 2023, Culp said we are “just beginning our annual strategy and budget planning cycle for 2023. We continue to expect significant year-over-year improvement in earnings and cash, but below our previous vision. With the world changing so rapidly, we have to see how the next six months unfold. GE expects to provide its 2023 outlook as usual with its fourth quarter results.
Culp credited company-wide efforts to embrace lean management for GE’s strong performance, despite macrodynamics. “The steps we take to improve delivery, pricing and cost performance create significantly stronger businesses. And our planned rotations are on track,” he said.
Culp cited examples from all of GE’s businesses. GE Aerospace sees strong customer demand, but faces supply chain challenges that make it difficult to deliver engines on time. The company takes action. “We work in partnership with our suppliers, conducting kaizen at the points of impact in their stores to help them reduce installation time, eliminate constraints, optimize transport and improve the overall flow to us”, did he declare. This work is leading to an increase in supplier throughput, and there are general signs of improvement, with a sequential increase in engine production.
At GE HealthCare, which is also facing supply chain issues, Culp noted that when COVID-19 forced the closure of a factory at its Precision Diagnostics (PDx) business in Shanghai, “our PDx team took action. quickly and we were able to operate at full capacity within 10 weeks. In the meantime, the PDx team in Cork, Ireland has leveraged lean to increase capacity by around five million doses per year.
Within GE’s portfolio of energy businesses, which together will carry the GE Vernova brand, Culp said Renewable Energy builds on the “Power playbook that has improved profitability and increased cash over the past three years” and should “return to profitable growth over time”. .” Combined with Power’s progress and improved profitability and cash flow, “we are excited about the anticipated future for GE Vernova,” he said.
On track with plans to launch three industry leaders
Culp said GE’s plans to create three companies with leadership positions in aerospace, healthcare and energy are on track. Earlier this month, GE unveiled new branding for its three planned future public companies: GE Aerospace, GE HealthCare and GE Vernova. And GE HealthCare has achieved several key milestones in its planned rotation, which will begin in early 2023. GE HealthCare has submitted its ruling request by private letter to the IRS and expects to file its confidential Form 10 shortly. GE HealthCare has also completed its extensive consultation with its European Works Council. GE HealthCare will trade on the Nasdaq under the symbol GEHC.
“Going forward, the story is simple,” Culp said. “We have leading, innovative franchises ready to accelerate in the critical growth areas the world needs. And our strong financial and operational foundation keeps us on track with our plan to launch three companies, each with greater agility, more focus and future growth opportunities. I am excited about what lies ahead and confident that GE is positioned to create value.
*Non-GAAP financial measure. Our reasons for using these non-GAAP financial measures and reconciliations to their most directly comparable GAAP financial measures can be found in GE’s second quarter 2022 earnings documents posted on ge.com/investor.