General Electric
Ge Windmill

GE Sets Sights on Higher Cash Flow Despite Continued Inflation, Supply Issues

Jan. 25, 2022
CEO Larry Culp sees the company “playing more offense” but is also paying close attention to improving the performance of its renewable energy division.

The leaders of General Electric say the industrial bellwether’s businesses are on track to generate up to $6.5 billion in free cash this year and $7 billion in 2023 thanks to growing volumes and better margins – both from price increases and greater efficiencies – in the runup to the company’s planned split into aviation, healthcare and renewables/power companies.

GE on Jan. 25 reported a fourth-quarter net loss of $3.8 billion because it took a $5.1 billion charge on the extinguishment of some debt. Adjusted profits came in at nearly $1.6 billion versus $1.23 billion in the same period of 2020, while sales slipped to $20.3 billion from $21.0 billion.

Investors reacted negatively to the report, with some market watchers pointing to those sales numbers and to comments from Chairman and CEO Larry Culp that “persistent supply chain challenges” will last into the second half of this year at least.

Culp told analysts GE is focusing on pursuing new business more selectively and focusing on both lower-risk and higher-margin opportunities. And he and his team added they expect organic revenues to grow in the high single digits this year, with adjusted operating margins climbing 150 basis points. Free cash flow, which was $5.8 billion in 2021 when excluding discontinued factoring operations, is forecast to come in between $5.5 billion and $6.5 billion this year.

“We are seeing real opportunities for sustainable profitable growth from near-term improvements in our businesses, especially as aviation recovers and our end markets strengthen,” Culp told analysts and investors on a conference call. “We are playing more offense through both organic and inorganic growth opportunities.”

GE’s aviation unit booked $7.7 billion worth of orders in the fourth quarter, an increase of 22% from the prior-year period. Orders also grew in its health care business, but revenues there and in renewable energy and power fell. Hurt by the expiration of production tax credits, orders for renewables and power projects both fell 21% to a total of $9.2 billion.

Both Culp and CFO Carolina Dybeck Happe said GE is focused on improving the performance of the renewables group, which is scheduled to spin out from the GE mothership in early 2024. (Healthcare is up to go out on its own about a year from now.) While affirming their belief in the longer-term positive impact the energy transition will have on GE’s business, they pointed to higher-than-expected inflation and margin and technological issues at the division’s international arm in particular, and Culp noted that older deals with lower margins are working their way off the books.

“It’s OK not to compete everywhere and we’re looking closer at the margins we underwrite on deals with some early evidence of increased margins on our 2021 orders,” Culp said.

GE shares (Ticker: GE) fell 6% to about $91 Jan. 25. Over the past six months, they have lost more than 10% of their value.

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