Q1 2022 General Electric Co Earnings Call

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Good day, ladies and gentlemen, and welcome to the first quarter 2022 General Electric Company earnings Conference call. At this time, all participants are in a listen only mode.

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As a reminder, this conference is being recorded I would now like to turn the program over to your host for today's conference, Steve Winokur, Vice President of Investor Relations. Please proceed.

Thanks, Brandon welcome to Ge's first quarter 2022 earnings call I'm joined by Chairman and CEO , Larry Culp, and CFO Carolina diabetic Hopper keep in mind that some of the statements. We're making are forward looking and are based on our best view of the world and our businesses as we see them today as described in our SEC filings and on our web site.

Those elements may change as the world changes with that I'll hand, the call over to Larry.

Steve Thanks, and good morning, everyone.

I'd like to start by addressing the devastating work in Ukraine.

The GE team stands proudly with the people of Ukraine as we shared last month, we have suspended our operations in Russia with the exception of some essential activities primarily in health care.

We've also made a multimillion dollar contribution through philanthropic commitments and medical equipment to assist those who have been directly impacted by the events.

I'm inspired by the more than 50, GE employees and the surrounding regions.

Open the doors of their homes to Ukrainian refugees and have volunteered their time to help with other refugee efforts.

Now, let me turn to our results starting on slide two.

I am proud of how our team drove improved services orders and cash as we manage through increasing challenges in the first quarter.

Orders were up 13% organically with strength in both services and equipment.

And we saw double digit growth in aviation and power.

Revenue was up slightly driven by growth in higher margin services in all segments. We saw continued momentum at aviation with revenue up double digits.

However, but was largely offset by supply chain constraints in all segments, especially healthcare and aviation.

U S policy uncertainty driving lower onshore wind North American deliveries at renewables this quarter and continued selectivity at power.

In particular so activity.

Being more disciplined about what we sign up we're taking a closer look at the margins, we underwrite and not competing everywhere continues to be a critical element of our strategy at power and renewables.

We're focusing on business that is aligned with our long term growth and profit objectives.

As you've been hearing from many other companies we are operating in a challenging macro environment.

Collectively supply chain issues, the Russia, Ukraine more than China, COVID-19 impacts adversely affected revenue in the quarter by about six percentage points I'll provide more detail. Shortly on these factors and more importantly, the actions, we're taking to mitigate them.

Adjusted operating margin expanded 110 basis points, driven by higher services mix and continued cost out.

Both aviation and power margins improved substantially while healthcare and renewables were meaningfully pressured due to both inflation and supply chain shortages.

Strong services growth and margin expansion led to an adjusted EPS of <unk> 24.

Up 85% year on year.

Free cash flow was roughly negative 900 million as expected given our seasonality.

This was driven by receivables and.

And inventory build through the second half and supply chain constraints importantly, though this was a $1 $7 billion improvement excluding discontinued factoring.

Overall services or recovery across our portfolio. Our total orders are strong and our cash generation continues to improve.

Excuse me.

Turning to slide three.

At our Investor Day in March we discussed some of the key risk factors that drove the range in our outlook.

Since then we are experiencing increased pressure from inflation renewed.

Renewable energy and the Russia, Ukraine War, we're also watching to evolving areas, namely additional supply chain pressure.

And recent COVID-19 impacts in China.

We are holding the outlook range, we shared in January and working through these pressures I just outlined.

But given the fluidity around the duration and magnitude of these factors, we're trending towards the low end of that range.

Currently it will run through the dynamics by business shortly but let me spend a moment on renewables.

As Scott Straits that shared last month, our financial results here have been unacceptable.

But they are fixable.

First continued U S policy uncertainty along with higher prices has reduced near term demand in our profitable North America onshore wind business.

Second inflationary pressures are impacting GE with higher material and logistics costs.

Third proven and new leadership with Scott and fleet Perone is transforming the business fundamentals largely using their gas power and power conversion playbooks in their new roles.

This all starts of course with what's in our control.

We need to run the business better and that's something we know how to do.

We're using lean to improve safety and quality.

And product cost, we're taking an even harder look at our cost structure to size the business for the new realities.

We're now managing the business in a more decentralized manner closer to our customers as well as improving our own execution.

We're being more selective on deals internationally with our price and market focus on defined geographies, where we've identified product fit.

Services opportunities and an ability to execute.

This is already yielding improved order pricing, which was up high single digits in the quarter and our onshore international business.

These actions will materialize in our results right away.

But we do expect renewable energy to return to being a profitable growth business over time.

And rest assured this is a business that is critical to the energy transition.

Thus one position for long term growth.

More broadly in all of our businesses, we are driving growth price and cost out we're.

We're growing our more profitable services businesses recent.

Figuring our supply chain and leading with innovation, while increasing R&D spend.

We're also raising list prices and price floors and in services, we're utilizing escalation clauses.

In our agreements.

And we're focused on sourcing and productivity to reduce cost.

Power for example continues to deliver profit and cash supported by price escalation in our <unk> and improving steam business.

Disciplined underwriting strategy and operational improvements despite the fulfillment challenges.

And we're embedding lean deeply across GE changing the way we work for the better.

You've heard me talk about the core principles of lean before which is all about serving the customer eliminating waste and prioritizing ruthlessly.

Earlier, I mentioned six points of pent up revenue, we need to work through to execute on the demand, we're seeing especially in aviation and healthcare.

Let me give you a few quick examples of what we're doing to manage through the well documented supply chain challenges out there.

We hosted our Investor day at Gamba, showing up close how lean is transforming the company.

Many of you saw at our aviation facility in Greenville.

Our team performs complex machining operations and detailed inspections on high pressure turbine blades.

Here, we're focused on reducing the site's blade delivery lead time.

The team has used lean to improve the plant layout and create standard lines improving part flow.

These actions have reduced lead time by more than 10 days and we're targeting an additional 10 day decrease.

Through this work overall inventory has been reduced as well.

Our military business is also making progress for the T. 700 program. We've improved first time yield in key lines by about 40% and shipments increased more than 35% sequentially.

This supported high single digit revenue growth at military in the quarter with more improvement to come as we apply these learnings to other engine programs.

In healthcare, our ultrasound team shifted part of their work cadence for make to stock to make to order.

This is simplified planning and execution optimized infrastructure cost and reduced lead time by 30%.

Importantly, the team has also increased inventory turns.

By 50% since 2019, removing the mood or the waste in the system.

And while lean is always important it's during these dynamic times that lead really contributes and differentiates us in the eyes of our customers.

In turn as we make these kinds of continuous operational improvements, we better serve our customers and set ourselves up to reinvest for growth driving innovation across GE, where we have significant impact with our customers.

Just looking at what we market sell and service today that renewables, we completed the traverse wind Energy Center with <unk> Energy recently. This is the largest wind farm constructed in North America, and a single phase and is powered by more than 350 of GE two megawatt platform turbines.

At aviation, we're developing technologies for the future. We've recently reached two key engine milestones.

Our adaptive cycle Xa 100, with the second engine to test fired up in March and our first <unk> hundred one engine tested successfully in March as well, achieving Max power with performance matching our pre test predictions.

We're also introducing new products like health care is Edison digital health platform.

Powered by AI. This platform will aggregate data from multiple sources and vendors to help reduce staff burdens and improve the delivery of care.

And at the same time, we'll continue to complement these organic investments with inorganic activity to improve our growth potential.

With an acquisition like BK medical where a sale as seen this quarter with part of steam Power's nuclear business.

In summary, we're taking action in this difficult environment to serve our customers while investing in Tomorrow's innovation.

We're using lean principles to improve our results and our culture.

We're confident this work is improving our operational and financial performance, while fortifying our competitive positions around the world ultimately unlocking further potential across our company.

And with that <unk> will provide further insights on the quarter.

Thanks, Larry.

Right into our results turning to slide four I'll provide color on the quarter on an organic basis.

Overall orders were strong with revenue up 1% remained pressured, especially in renewable due to U S onshore the constraints the clarity.

Coatings supply chain disruptions, Russia, Ukraine in China weighed on our ability to shape, which further hurt revenue taken together these constraints reduced total growth by about six points.

Plus our selectivity actions impacted revenue by another point.

Important to highlight that this was launched in equipment dynamic and services remain strong up 15% with growth in all businesses, notably aviation commercial services rose, 37% at the market recovering accelerated.

We continue to enhance profitability expanding our adjusted margin 110 basis points, reflecting the mix shift to higher margin services and continued cost productivity.

On the positive side, both aviation and power expanded with more than 300 basis points, driven largely by favorable services mix with empower Steve showed significant expansion, reflecting our strategy to exit less profitable segments like <unk> been cone.

<unk> from prior cost actions.

It was approximately 200 basis points of additional margin headwinds from inflation and logistics costs net of sourcing actions at the total company level.

Greater than expected, especially in our shorter cycle businesses like half Ken.

While we achieved positive pricing on deliveries this quarter, particularly in aviation and power it was not enough to offset inflation.

Despite the tough macro environment, we are continuing to prioritize investing in the future with R&D up double digits, we remain focused on leading with innovation through highway time strategically differentiated technology.

Aviation Nextgen programs and Heska imaging platforms like the city photon counting.

Finally, we increased adjusted EPS, 85% driven by margin expansion in the standard with some continuing adjusted EPS I'd call out three additional adjustments based upon that.

First separation costs related to the planned business separation second asset impairment due to our previously announced plan to sell the nuclear activities with interesting business ETF inside Russia, and Ukraine charges, primarily related to sanction activities at aviation and southern power basis.

In all we delivered significant order growth and continued margin expansion this quarter.

Moving to cash.

Free cash flow was negative $880 million.

Use of cash, which we expect seasonally this was an improvement of $2 5 billion year over year on a reported basis were up $1 7 billion, excluding discontinued factoring programs.

The improvement was largely driven by lower interest expenses and derivatives on reduce debt as expected as well as improvements at aviation and power in line with earnings growth and utilization.

Offset by significant headwinds, including supply chain disruptions.

This quarter working capital was the biggest component of negative free cash flow looking at the dynamics with citizens for their use.

Of course, this was driven by grueling CSA billings third quarter deviation and supply chain constraints driving higher deliveries made in the quarter.

Inventory was also a use across the businesses of $1 billion.

We expected inventory to grow in the first quarter as inventory, let's say to support second half volume, but this was further impacted by material shortages delaying shipments of finished goods.

We still see opportunities to improve both inventory and receivable dsos in this challenging environment. It is much harder to implement though but we are still seeing pockets of improvements take time, showing North America I would assume in Pensacola, Florida in the case of events focus on hub costing using standard, but David just leads.

Time to have costing for the assembly line by 80% so from nine hours to under two and as a result. The team also includes productivity by about 50% and reduced inventory by more than 80%.

Contract assets and progress connections were a source of cash strength was driven by utilization outpacing service visits in aviation and power as well.

Progress payments in aviation and renewable energy.

In London.

Our efforts to improve working capital management are slowly taking hold despite the difficult supply chain environment, we see real opportunity for the company to build on this momentum keeping us on track to meet more than $7 billion of free cash flow for 2023.

Our success in strengthening our balance sheet and improving cash flow provides us with more optionality to drive value.

<unk> through growth investments and capital return initiative.

Our board recently authorized up to 3 billion in share repurchases as a potential capital allocation alternative.

Moving to other businesses.

Aviation results reflect the continued recovery in commercial markets as demand remains strong.

However, supply chain disruptions presented headwinds to our top line performance this quarter.

And be a key watch item as they progress through the year, but we still expect improvement across the business as deliveries and shop visits ramp.

For the quarter orders grew significantly with both commercial engines and services up substantially again military orders were down largely due to tough pump in the previous year, when we reported <unk> and T. <unk> engine demand remains robust.

Revenue was up due to meaningful growth in commercial services again, the shop visits up 18% year over year.

First shop visits this quarter would have been even higher without the material availability and fulfillment issues we experienced.

Military was up as lean improvements begin to materialize and.

If we apply the two 700 learnings across other programs, we expect tangible progress to the second half of 2022.

Commercial engine revenue was down double digits, driven by supply chain disruption and lower production rates on generics.

You can see the impact of wide body mix here as engine shipments were down just 4% year over year with narrow body up 27%.

The supply chain constraints, but mainly related to labor and material availability due to COVID-19 disruptions in our facilities and the diverse suppliers, which were actively managing.

Segment margin expanded 310 basis points to 16, 2%, primarily driven by commercial services growth as well as positive pricing and productivity.

This was partially offset by higher leap engine shipments inflation and additional growth investments.

Looking ahead at the remainder of the year, we expect demand to remain strong as the market continues to recover in most parts of the world. Despite uncertainty in China due to the recent COVID-19 impact.

We're managing through this and the supply chain disruptions.

We still expect shop visits to ramp through the year up to 25% driven by the ongoing recovery and customer confidence.

And this supports the total year growth of 20% or more.

Moving to health care.

Market demand continues to be strong.

First quarter was impacted by supply chain and inflationary challenges.

Orders were up high single digits year over year. This was driven by high single digit growth in health care system and mid single digits in today.

Elective procedure volumes recovered from January Covid cases subsided in February and March with volumes improving sequentially. So hospital staffing shortages continue.

Revenue was up 2% with services growing low single digit and equipment flat.

Most impacted by the continued supply chain constraints, primarily in electronics.

Covid impact in certain China region further limiting what we can buy unshaped and affecting revenue towards quarter end.

Lower volume in Russia, and Ukraine, and reason that accounts for about 2% of healthcare Samuelson.

And finally, Covid has delayed site readiness and some equipment installations, mainly due to customers' labor and construction material shortages.

Absent. These constraints, we estimate that the revenue growth would have been about 7% to eight points higher or.

<unk> growth of approximately 9%.

Segment margin was significantly impacted by increased material and logistics inflation, which net of our sourcing actions resulted in a headwind of about four points.

We've been leveraging every tool at our disposal within our control they think of price actions, which are showing early success qualifying alternative parts redefining product configuration and reducing discretionary spend.

The health gets instrument focused on innovation and commercial growth investments with R&D investments up double digit this quarter. A couple of cases loosen highlights from the quarter include the FDA approval of the entitled control software platform to automate anesthesia delivery.

Subscription models on a handheld ultrasound.

Looking ahead, our current view of health care is that supply and inflationary challenges will persist at some level through 2022 sequential improvement depends on supply chain constraints.

Especially in China, and our ability to leverage <unk> to improve output and strengthen our pricing discipline.

We are working to offset headwinds with price increases, but given product fulfillment timing. This will likely have a more meaningful positive impact in the second half.

We also continue to manage SG&A and discretionary costs to improve margins.

Our supply chain constraints.

Healthcare is well positioned to achieve high teens to 20% margin over time.

Turning to renewable.

Our results were challenging so let me give you more context.

We are seeing pressure in the U S onshore wind largely due to the PTC dynamic and higher prices suppressing demand as customers delay decisions great.

<unk> is positioned to support modernization as demonstrated by our contract this quarter.

To supply a digital subscription.

Empire offshore wind one project.

We've started to see interest interest within Europe as countries recognize the need to meet the energy goes.

On the quarter.

Orders were down double digits.

Equipment orders decreased consistent with the inflation driven customer delays ambiguous market decline.

Our selectivity strategy is impacting both wind and grid, but it was also down as we lapped a notch HSBC.

This loss, however, grid automation orders remained strong up double digits and overall services grew mid single digits.

Revenue declined with oil business is down as we saw lower equipment revenue with 280, <unk> wind turbine deliveries year over year.

Grid was also down due to increased selectivity.

Partially offset by significant service growth, primarily driven by onshore repowering.

Segment margin declined substantially driven by volume reduction in our most profitable market U S onshore combined with cost inflation in materials, such as steel and transportation costs across the business.

Also in margin decline and was negative pressured by volume mix and the new product transition.

We continue to transition to newer product offerings internationally and executed on lower margin projects in North America.

On the positive side, we saw benefits from lower cost and savings associated with prior restructuring projects across our businesses.

That's great margins improved slightly with the restructuring benefits offsetting lower volume and our rundown of low margin legacy backlog.

Today due to lower volumes in onshore wind in North America, and the additional inflation.

We expect renewables to be.

The outlook range.

The business full year results.

It depends largely on North America volume, the inflationary environment and execution of cost and price actions.

Overall these results are disappointing and we know we have a lot to do here, but we have a proven playbook and leadership driving price to market and selectivity and take a hard look at the right cost structure long term with confidence the two will drive profitable growth.

Given the end market demand for renewable energy generation as well as a thousand gigawatts of wind capacity in the next decade, and our strong portfolio.

Moving to power.

<unk> is driving operational improvement.

Better results reflect progress at gas power and power conversion ethylene takes home positioning the business for long term success.

Global gas generation and DTA utilization remained resilient up mid single digits as the market manages through the uncertainty and disruptions in Ukraine.

Despite recent price volatility gas continues to be reliable and economic source of power generation.

Over the next decade, we expect the gas market to remain stable with gas generation growing low single digits.

Orders were strong and we improve the quality of the backlog for the future.

Significant growth in equipment was driven by large edge castle with continued <unk> momentum.

Our new business underwriting discipline as we grow our backlog profitably.

Services orders were also up driven by gas with growth in both I would.

Actual and transaction of the business.

Revenue was down mid single digits, primarily driven by equipment as we ship <unk>.

This was consistent with our backlog shifted which will result in backend loaded equipment revenue this year.

<unk> continued to grill shipping seven more units versus last year.

Services was up 1% driven by gas and power compression.

And recall, we de consolidated the Baker area jumped venture last year. So that is now excluded from our organic metrics.

Segment margin expanded 360 basis points.

Gas power margin was positive and improved we're seeing progressive student with meaningful margin improvement due to the increased focus on services reduce cost structure and project and legal charges from last year that did not repeat.

Similarly, the focus on services and selectivity of power conversion generated positive margin, making four quarters of profitability.

And for 2022, we expect to deliver margin expansion, driven by Ara deliberative and delivery and transactional services and continued improvement incident and.

And while we expect a dip in our CSA revenue.

But no we're planning outage profile in 2022 really based on multi technology cycles, we expect to increase next year.

And we expect continued strong services utilization and cash generation.

Power remains on track to meet its full year outlets.

Infosys relatively higher exposure to Russia, and the other businesses with Russia comprising of about 4% of revenue at high incremental margins.

Fortunately, our commitment to selectivity and operational execution is enabling us to win the right orders for rail services and increase free cash flow generation.

Okay.

Finally, I'll spend a moment on corporate as a reminder, we rolled the remainder of capital, including Etfs and equipment.

Adjusted corporate costs, which we expect to be and even through the year decreased by more than 40% year over year.

This was primarily driven by better performance and improvement in function and operations.

While excluded from our adjusted results insurance net income was approximately $180 million up year over year. This was driven by favorable claim expense emphasis portfolio and continued investment return favorability.

This quarter, we also completed our annual cash flow as expected, we funded $2 billion in line with permitted practice.

Additionally, our team is preparing to implement the industrywide FSP accounting standards beginning in January 2023.

As discussed previously this will result in a GAAP charge, but does not impact projected cash funding and took your earnings will provide more detailed update.

In parallel we are adopting the mtc first principles approach, which complements the fastest standard and includes incorporating more granular modeling assumption. This.

This is expected to impact our GAAP allergy margin, but we expect the margin to remain positive and in addition, we do not expect changes to statutory reserves to regulatory capital or projected funding.

In discontinued operations, we have a runoff punished BPH margin mortgage portfolio with the current gross balance of $2 2 billion. This quarter, we recorded charges of about $200 million, mainly driven by more adverse results for banks and the ongoing litigation with borrowers.

This brings the total litigation reserves related to this metric to approximately $900 million.

Stepping back the <unk>.

Our managing to an increasingly difficult macro environment. We are focused on what's within our control by leveraging lean and digital tools to improve our operation.

As those improvements take hold we will drive sustainable profitable growth and free cash flow.

We're being asked to deliver value for shareholders and strengthening for the long term.

Now let me back to you.

Kimberly to thanks before I close I'll briefly touch on the real progress were making on our plan to create three independent investment grade industry leaders.

As always it starts with our team as we shared at our Investor Day, We've added three new Board members, Steve Angel Bella Goren, and Tom Holliday, who bring deep domain expertise in our key industries.

And we are delighted to add to our existing leadership bench, Scott Reese, who joined as CEO of our digital business, which.

Which will be part of Ge's global energy portfolio going forward.

And in healthcare, we welcome Chief people Officer, Betty Larson and General counsel for <unk>.

We remain very enthusiastic about the opportunities. These spins will unlock for our already strong franchises.

As they will help drive greater focus accountability and alignment with our customers and the markets they serve.

We're committed to making sure. Each proposed company is set up with an investment grade rating strong capital and governance structures and best in class talent that will position them for long term success.

As you heard from our health care leaders last month planning work for the spinoff is well underway and we're on track to launch healthcare early next year.

We've received positive feedback from our customers and many investors and we have dedicated cross functional teams working through Standalone operating and capital structures governance branding and a range of other work streams to ensure operational readiness we.

We have more than 1000 people today engaged in the separation planning work moving forward with purpose and important areas.

We're progressing the carve out audits and we have finalized the it infrastructure and legal entity separation plants.

A lot of work has been completed more to come but we're on our way.

Pete and his leadership team are focused not only on successfully executing the intended spin, but also deeply embedding lean and developing long term plans to accelerate top and bottom line growth as an independent company.

At the same time GE remains focused on serving our customers. The majority of our teams are fully dedicated to running the business and driving lean improvements to further strengthen our foundation ahead of the spin.

As we move forward, we're confident about our path to create three outstanding companies well positioned for the future.

With global leadership positions lean cultures, and innovation prowess to solve for the critical needs of our customers.

I am grateful for the focus and dedication of the GE team I continue to be inspired by their extraordinary commitment.

I am excited about our ability to realize the full potential of these businesses as we move forward.

To close on slide 11, it's been a busy start to the year to say the least this quarter presented its challenges with rising inflation.

Renewable energy and.

And Russia, Ukraine, Chief amongst those challenges and we continue to monitor additional supply chain constraints.

And the Covid impacts in China.

But we're managing through focusing on what we can control and there is a lot that we can control.

The recovery in services was a bright spot with all businesses growing service revenue this quarter as well as strong underlying demand in aviation and healthcare.

I am confident that our team is leveraging lean and decentralization focused on safety quality and delivery and taking action to drive growth price and cost out and.

And we continue preparing our plans to stand up three strong independent companies focused on growing critical sectors.

In aviation, we're in a customer a post COVID-19 recovery and new engine ramp with our airframe customers accelerating our mission to create a smarter and more efficient future of flight.

In healthcare, we're renovating in precision health to drive efficiency and improve patient outcomes.

And in energy, where we see tremendous opportunity to provide affordable reliable and sustainable power.

Overall, I hope you see what I see that our businesses are positioned for success as we continue to scale lean and drive innovation delivering better results for our shareholders today and tomorrow.

Steve with that let's go to questions.

Thanks, Larry before we open the line I'd ask everyone in the queue to consider your fellow analysts again and ask one question. So we can get to as many people as possible we have a hard stop at nine o'clock.

<unk> can you please open the lines.

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And from Wolfe Research, we have Nigel Coe. Please go ahead.

Thanks, Good morning.

Good morning, everyone.

Alone.

Good morning, how are you.

Wanted to come back to the guide.

Obviously, recognizing your comments about slowing the range, but we focus on renewables and power renewables and healthcare based on <unk>.

Our performance, even the low end for those two segments looks like a long hubs.

No.

I'm wondering if you can maybe just in more detail talk about the line of sight you have to better results in those two segments be it pricing.

Backlog quality or cost reduction.

Whatever you see up there to improve the performance and get us into those ranges for the full year, how does that second half ramp look.

Yes.

Well I think if we start with healthcare Nigel excuse me.

We are clearly seeing more inflation, there and the price cost challenges. We've discussed before I think continues to be top of mind. We're encouraged by what we've seen with respect to improved pricing in the order book.

Here of late.

That is yet to come.

<unk> up with what we're seeing in terms of price and our recognized revenue, but that will come so I think as we look sequentially through the.

The rest of the year that will be less of a headwind for us as we make that progress I think we will.

Doing a lot of good work with not only our suppliers, but within our own facilities.

To make sure that we're able to match output with demand right. This is not a demand issue as you saw orders in the quarter for healthcare were up 8%. It really is a throughput dynamic I don't want to lay all of that off on our suppliers. There is a lot that we are doing.

With them and with our own facilities to improve the reliability of supply and things are just backed up.

We've talked about this before I think we're making good progress with some of our larger suppliers.

If you will with our many of our eight parts, but with a b and C. Parts that continues to be a challenge, but again, whether it be the redesigned some of the resourcing some of the better signaling.

With them, let alone archives and work on our own facilities I think we will see through the course of the year sequential improvement in that regard. So we can get that volume out.

With better pricing over time.

Given this this <unk>.

Demand backdrop, I think youll see healthcare.

Improved through through the course of the year I think with respect to renewables.

What we really want to highlight here.

We're fundamentally taking I think a.

A more measured a more conservative posture with respect to the outlook in onshore wind.

There is I think considerable uncertainty with respect to the PTC and other incentives.

That is creating a bit of a pause with customers.

I think the timing of that resolution is unclear Congress can and I believe will take action this year, but at this point with the passage of time.

I think we are we know that the orders later in the year are likely to be delayed if not pushed into 'twenty three that will create some pressure for us, particularly from a from an order and ensuring a cash perspective.

But that coupled with the pricing actions, which I'm pleased by right because we do need to see improved price and renewables are particularly in wind.

It's a short term pause with respect to demand is the right thing for the business and I would argue the industry, we're taking some of those tough decisions but.

But if you look at even ex U S. We saw a high single digit increase in our <unk>.

Pricing moves internationally and onshore wind that's part of the improvement plan and again I think something that Youll see play out through the course of the year, but in the absence of that volume.

In onshore North America that creates a more muted outlook for us in renewables.

In 'twenty two.

And maybe if it makes sense.

So I think on the second half and so basically if you think about it.

Beginning of the year, we talked about the orders and as Larry mentioned as one of my health care would have been so we are expecting that growth to come in the second half.

Well, we have orders now.

And we also have a seasonality plus the first half and the second half of the year as you know incident, the big big growth of volume and profit and cash defenses analogy and through the second half and you add on top to that sort of the strengthening of the organic growth that we're seeing some health care.

But actually also within renewables, we have a second half where we know that the orders in the second half on onshore U S and a couple of customers are on some factors so that.

And also improve in the second half numbers.

Okay.

From Bank of America, we have Andrew <unk>. Please go ahead.

I asked good morning.

Good morning, Andrew.

Yes.

Regarding your range you did say that you are holding the ranch initiated in late January but currently trading too low and so two questions really.

What would it take what set of circumstances would it take to hit the upper end of the range because I do find it interesting that you still it's still out there and the second question. When you talk about the range are you thinking differently about EPS versus free cash flow, which one is lower risk. Thank you.

Well, let me let me take the first part of that maybe Carol Adam will take the second part of that Andrew I think what we really wanted to make sure people understood here was that we've got a number.

Pressures again inflation, we talked about renewables, a moment ago and.

Incrementally the Ukraine, Russia situation.

I think depending on the pace of some of these sequential improvements, we just touched on b and our pricing actions be it our throughput.

Actions.

Let alone some of this policy uncertainty being resolved that could I think give us.

A bit of a lift here beyond the beyond the low end of the range clearly throughput is not strictly a healthcare dynamic for us.

We're really encouraged by the strong order books.

<unk> up 30% overall as you saw services up over 35, but we really have a lot of work to do again with the supply base and in our own shops too to keep pace with that.

So we're working that hard every day I see a lot of progress, but nevertheless, we are building our past due backlog in a number of areas and we've got to we've got to clear that out.

But given where we are today.

You see how we're framing the year.

Yes, and if you just compare sort of the EPS trends and the cash flow and what we're commenting on is we're saying that.

Hi, It is at the low end and that goes for both cases I would say from them on this call.

Opportunity perspective.

Net net the risk on the cash flow side than on the EPS side.

From Citigroup, we have Andy Kaplowitz. Please go ahead.

Good morning, everyone.

And good morning, Andy Kelly, maybe can you give us more color into your assumptions for the cadence of the year, both in EPS and free cash flow, maybe quantify how might additional supply chain in China pressure in that Q2 versus what are your assumptions for how these pressures might alleviate in the rest of the year and or how your own self help and pricing initiatives.

To help your earnings progression.

Yeah.

Yes sure so.

What we are seeing like we've talked about the Q1 and the pressure that we sit there. So what we are seeing and what we're expecting is that it continues through the second quarter.

But then it starts to ease and you sort of smooth the impact of that.

Through the businesses.

Aviation being able to.

Paul the engines that they want towards the second half the also sent back.

Specially on healthcare I mean, 9% organic growth, if we had gotten everything out that our customers wanted and.

So we are expecting that to come towards the second half as well and that will then obviously impact both profit and cash.

If you look at the renewable side, it's probably more of them.

Slower trend them highly impacted by the inflation.

We do have as I mentioned earlier.

Good good audience with reasonable margins in the second half we had a positive mix lots of first half to second half it isn't necessarily inflation, but as we continue to work through that would also improve I would say empower probably most impacted that we do have a dynamic that we know of that with our backlog we have more deliveries in the <unk>.

Second half and that's also why.

We expect to have that I'm going to call. It <unk> it last year as well.

With lower first half volumes versus second half volumes, what I would say we expect to go through all the business is through the year.

Stronger momentum and will be price.

The pricing actions that we're working through especially in the longer cycle businesses, you sort of start to improve.

Improved pricing in the order side and Larry mentioned that earlier today that even if you take onshore wind international which is an important area for us to increase prices at high single digit pricing.

The first quarter in orders.

As the orders translate into sales.

Revenue will start to move.

More impact from pricing as we go through the year.

I would say pricing costs at the balance for the year.

We expect it to be negative, but we do expect it to be.

The other actions that we're doing in productivity and restructuring.

From Jpmorgan, we have Steve Tusa. Please go ahead.

Hey, good morning.

Just a couple of.

Follow ups I guess first of all.

Can you just tell us what you currently expect working capital to be this year. If there is any change there I think you gave precise guidance at the March event, and then I think you just talked about.

Second quarter being can you just maybe be more precise about some sort of a range to frame the second quarter. It seems like there was some confusion coming out of the fourth quarter.

21, and it kind of resulted in a couple of rounds of cuts in the first quarter, maybe if you could be a little bit more precise relative to the 24 and relative to the negative $800 million in free cash what you would expect for the second quarter. Thank you.

Hi, Steve Thanks for asking two questions.

If I start with the working capital.

We expect even at the low end of the.

Guide to be to have a positive impact from working capital in 2021, we had a good 2 billion of positive flow of working capital and we expect that to be an even higher positive fell in.

2022, I would say if you look at it part by part this is Steve.

We still expect high single digit growth, we expect receivables to them to pressure, while we would expect inventory to improve and basically the other pieces on working capital and also to be a positive flow for the year. So you would expect that to continue to improve in 2022 as well.

And thank you for coming back on the <unk> question I think I missed that one from from you and sorry about that so if we talk about the second quarter, where we arent Lawrence spoke about what's pressuring the first quarter. So clearly we continue to see that into the second quarter. That's when we have the inflation, we have Russia, Ukraine, and we have the renewable situation than we have.

Backend loaded second half estimate usually would have.

I would say, though that there is a lot of good things going on as well, especially the aviation return to flight and we expect that to continue to ramp through the year.

As I talked about about the power part.

Well Ethan.

For the second quarter, specifically working capital.

We have the typical seasonality and that means that <unk> is pressured by working capital overall.

Overall for the second pointing are expecting low single digit growth Some Olympics.

<unk> sequentially, and a free cash flow thats better sequentially, but still negative.

From RBC, we have Deane dray. Please go ahead. Thank.

Thank you and good morning, everyone. Good morning, everyone.

Morning, Jay can you provide some more color on what the macro assumptions are that are embedded in the guidance for the year and just to clarify.

And I know this is fast changing but you said it was a six percentage point revenue headwind between Russia supply chain and the China shutdowns.

And are you able to parse out.

Those three factors that'd be helpful. Thank you.

Dan I would say that.

With respect to the macro again.

I think inflation pressures.

<unk> more acute in certain areas.

And we're working hard to offset that in a number of ways. Both from a from a procurement from a utilization perspective, let alone on the on the price side, we can get into that in more detail if you'd like.

Again, I think in renewables.

Assuming a resolution, but probably a late resolution in that regard with respect to some of the incentives here and the clearing of this pause customers, we're taking in the wake of.

Price increases that we and others are trying to put across.

Clearly there is an inflationary between metals and it logistics based inflationary pressure that has picked up in renewables as well and then there's just the.

The Russia, Ukraine dynamic.

I think we're really keeping a weather eye out on some of these supply strained constraints.

Working very hard to offset those.

Both with our suppliers and in our own shops right. There's a lot that we can do to frankly be a better customer with our suppliers in terms of how we signal what we need and when we need it if you will a good bit of pull being implemented now, particularly at aviation, we're doing <unk> with our customers with our suppliers to help them break bottlenecks, where we can.

So theres progress probably more with the parts and the C parts.

But we're working hard and keeping an eye out on this while continuing to drive.

The flow.

In our own facilities to drive more more output were around where we can also watching closely what happens here and in China. We know we were hit both from a demand and from an output perspective in the first quarter with the lockdowns, particularly in and around Shanghai, how that plays out is not something that we have.

Our handle on I don't think anybody really does so those are the two things we're watching but it's really inflation.

The dynamics in renewables, and Russia, which are the primary.

Pressures on the on the range.

Yes, when we talked about six 6% so that's the impact on the top line.

And five of that is from supplies.

One we attribute to sort of the China and the Russia situation.

From Melius research, we have Scott Davis. Please go ahead.

Good morning, everyone.

Hey, Scott I wanted to focus.

A little bit on health care because it's.

It's a pretty important part of the story here obviously.

The lost sales that you get when you have the problems in supply chain.

Is there a way to think about is any of that loss forever or is it just pushed to the right are there late delivery penalties or anything in the contracts that would.

Apply that you really can't make money when you do ship those units out.

Scott Fortunately, we make very good margins across the health care portfolio right, it's probably our highest gross margin business of before so when you look at a quarter like the one we just had where orders were up eight shipments were up too.

We're building backlog.

And that's a good thing normal course, Unfortunately, what's also happening because we havent necessarily cleared all the orders we got in the back half of last year. We're also building our past due or our delinquent backlog.

That doesn't that tends not to carry some of the.

The penalties that youll see in longer cycle businesses. So we simply have to get that product out recognize that revenue when we do and I think youll see.

Strong impact both on the P&L and in the cash flow statements.

Want to do a lot of work to do with our suppliers a lot of work, we can do within our own shops, which which we're doing it's just.

Hard for anybody on the outside to see some of that progress, but Fortunately again, it's not a demand issue, it's really a throughput issue and that's that's where we're focused on the inflationary side of things.

It's.

There is pressure there and again Thats why.

And the team have been pushing a price where they can.

Seen really nice improvement in the.

The order book in that regard to get that into revenue of course, we've got a clear this backlog and in some cases that is happening now we're going to need a few more months I think in other cases, but that work again is underway and im optimistic.

You put all that together, it's a good part of the sequential improvement we should see in health care through the course of 'twenty two.

From Morgan Stanley , we have Josh Caulkers Witzke. Please go ahead.

Hi, good morning, guys.

Hey, Josh.

Just.

<unk> heard a lot of ground elsewhere, maybe just spend a minute on aviation if we could.

Just looks like there's a pretty wide difference between commercial services in shop visits.

Services being up kind of double the shop visit rate I mean, how sustainable is that number or is that just some of this higher calorie stop coming in on wide body like how do we how should we interpret that that performance variance and how do you expect that to trend from here.

Josh you're right I mean, we've got.

<unk> momentum right now and in services.

Revenues were up 26% in the quarter in aviation.

Not simply a function of shop visits.

And there's a lot we're doing even there to make sure that our own capacity and our supply lines are set to keep pace with this ramp again, a high class challenge to have demand is robust but in addition.

We're feeding parts and other.

Other elements of the service mix to third parties, which particularly now as people.

With an.

And inventory depletion as everybody is working down inventories during COVID-19 to get ready for this post COVID-19 ramp we're seeing some of that.

Spike in certain areas as well right now so there's a lot of good going on and again I think we're our primary challenge is going to be to keep pace with the.

The rest of the year.

Brandon we have time for two more questions.

From Goldman Sachs, We have Joe Ritchie. Please go ahead.

Thank you good morning, everyone.

Hi, Joe.

So one question on just a clarifying question and then another quick one.

The bridge to 2023, so for this year in 2022 is is that 25 to 75 basis points.

Margin expansion in health care is still on the table before at the low end of the guide and then as you think about 2023 and clearly the net income bridge from 2022 to 2023 is widening widening I'm just wondering whether any any confidence has waned at all just given what's happening.

And externally to get to call it roughly $7 billion of net income by 2023.

Okay.

So Josh maybe Matt.

So Joe I'll start with the first part so if we look at the healthcare.

And the guide that we have with that 25% to 75 bps I would say that it will depend on how much.

On the supply chain is as in the second half because of the pent up demand that we have is great.

Great orders in there and <unk>.

And getting those out at a good pace in the second half than we would be able to get.

Part of that range I would say, though that on top of that Larry talked about before we also have the work done on pricing we have the work done on productivity.

And as well as sort of pushing the right mix even in health care.

So it's still a possibility banks of course tougher now.

Part of the range and for 'twenty two to 'twenty three Larry.

Sure Joe I think a lot of what we've talked about here in terms of the sequential improvements.

In those areas that are within our control really are the most important.

And the bridge to 'twenty three.

But.

I, obviously start with cash as you know when I think about if you will the low end of that 556 and $5 billion guide for cash this year, if we just take.

The 505, it doesn't really take as much to get to that $7 billion figure. We've talked about for next year again, I think aviation is moving forward in this regard.

And the <unk> headwinds, we've talked about for this year, probably half a billion shoulder.

It shouldn't repeat next year.

A moment ago with Scott relative to healthcare and the sequential ramp from here.

We think demand will continue to be robust again in this post COVID-19 world, We see investment both on the private and the public side.

So as we clear that backlog, probably carry a little bit of that back into next year.

We're going to move and I think with respect to power you continue to see steady improvement and all we really need out of renewables is.

Little bit of the same right not at not a dramatic turnaround going into next year. So a lot of work to do still this year.

We think we're on a on a path for 'twenty three along the lines of what we've discussed previously.

Okay last question. Please we'll squeeze in.

From Barclays, We have Julian Mitchell. Please go ahead.

Thanks, a lot good morning.

Maybe just a quick question.

On the point surrounds offsets to some of the headwinds you had that EBIT bridge on slide I think 112 of the Investor day deck, you have the price cost inflation bucket and the productivity bucket can you just sort of give us dollar numbers on what youre expecting for those two in 2022 now.

<unk>.

That price cost aspect in particular.

How big could that headwind to be and what was it in Q1, and then on the productivity side.

I didn't really hear you talk about accelerated restructuring today. So I just wanted to kind of what's going on on the productivity side to make sure that you can limit the neck.

The negative impact of these gross headwinds into 'twenty, two and not have them bleed too much into next year.

Well Julian let me maybe take the back part of that while currently to grabs paid 112 from the deck in Greenville.

By way of reference.

I think when we talk about throughput.

We're talking <unk>.

<unk> in that it.

He was a productivity element now admittedly, we want to make sure in the spirit of <unk> safety quality delivery before cost that were getting product out.

A lot of the lean work again I think you saw this in Greenville allows us to create capacity.

Bus bottlenecks and do so in a way that isn't throwing a lot of arms and legs at it that would dilute productivity.

So part of the challenge in aviation and in healthcare is to make sure that we're we're true to that but I think the lean approach make sure. It's a focus on productivity first and foremost you did here in the prepared remarks.

I will talk about the fact that we need to adjust the cost structure and renewables to the new realities that we're dealing with in some of these uncertainties. So scotts.

In that business I think 100 days give or take right now, but he and the team are taking a hard look at where those opportunities are too.

Deal with some of the.

The cost buckets that are.

Clearly a need of review so that work continues very much spooled up on that but again in the spirit of priorities, we want to make sure we're clearing the supply.

Constraints as best we can.

And <unk>.

Working the purchase cost and the.

The price side of things.

Probably with more energy.

And actually Julian I vividly remember that slide so I didn't even have to look it up.

It's really about how we get.

From a profit from sort of $4 six to when we go in 2022 and just start with the first quarter because you asked about that.

In the first quarter, we did see positive price, but it did not offset.

The cost on influence second even net of the cost, but we do expect that to improve through the year as the pricing impact continues to get larger but also as our work and we talked about it in three different categories. We've talked about sourcing actions, we talked about productivity and we've talked about restructuring.

If you take for the full year I would say.

What we see now price cost we thought would be.

Typically platform, what we're seeing now inflation is strengthening and therefore, we expect that to be a negative net but we do expect to be able to offset that with productivity plans that we have as well.

The current restructuring that we've talked about.

Other big important part to grow the profit is going to be on the volume side, which we've also talked about them and we are saying high single digits, but the low part of that that statement.

Reasonable growth, so that's going to be an important part.

How to get to the profit number for the full year you asked if we're not doing anything more or why do we do on productivity and restructuring.

<unk> tried to talk to earlier today was that each of the businesses are going through their plans both on productivity.

And how does it us right sized the organization. So I would say as we're speaking all tenants are looking to increase those numbers and increased access since they are also seeing the effects of inflation.

Larry Larry any final comments.

Steve Thanks.

Yeah.

Wrap up here by highlighting the fact that our teams continue to deliver for our customers in what was clearly a difficult operating environment and we're laser focused on positioning all of our franchises all of our strong franchises for the long term.

I'd, just like to wrap by by thanking our employees and our partners for their hard work and our investors for their continued support and we appreciate your interest your investment in GE and your time today of course, Steve and the IR team stand ready to assist you as you consider GE and your investment processes.

Thank you ladies and gentlemen. This concludes today's conference. Thank you for joining you may now disconnect.

Okay.

Okay.

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