Q3 2022 General Electric Co Earnings Call
Good day, ladies and gentlemen.
Welcome to the General Electric third quarter 2022 earnings Conference call. At this time all participants are in a listen only mode. My name is Denise and I will be your conference coordinator today.
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Now like to turn the program over to your host for today's conference, Steve Wynn occur Vice President of Investor Relations. Please proceed.
Thanks, Denise and welcome to Ge's third quarter 2022 earnings call I'm joined as usual by Chairman and CEO , Larry Culp, and CFO Carolina diverse copper GE healthcare CEO . Pete Arduini is also here with us to share insights on pre spin progress and performance keep in mind that some of the statements we're making.
Forward looking and 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 website those elements may change as the world changes and with that I'll hand, the call over to Larry Steve. Thank you and good morning, everyone.
We're building broad based momentum and GE delivered solid third quarter results with aerospace leading the way.
Within <unk> power remains on track to grow this year and we took significant actions this quarter to reset renewable energy for future profitability.
And external catalysts like the recent U S climate legislation and the European energy crisis, our increasing investment in new de Carbonization technologies, helping position this business for longer term profitable growth.
Our planned spins are on track with GE healthcare ready to launch in January and <unk> in early 2024.
Health Care's in the homestretch now.
I'm, particularly proud of what they've accomplished navigating COVID-19.
In a new CEO and CFO and now preparing to operate as an independent global leader in precision health.
<unk> is with US today to give you a full update.
Now a moment on GE aerospace.
I'm really excited to be leading this exceptional franchise, especially during this unprecedented industry ramp.
We have a tremendously talented team a highly differentiated product and technology portfolio and leading positions in attractive commercial and.
And military sectors.
And we have leaders that nicely balanced unparalleled experience.
And fresh perspective, as nearly half are new to their roles in the last year or.
Our high caliber team includes Russell Stokes, leading our commercial engine business, Amy Yoder, who runs our military business and Rahul Guy, who recently joined as CFO .
In that same vein I'd like to recognize Shane right, who is retiring after 34 years of service.
His many contributions across GE and GE aerospace have been invaluable.
And help build a world class business and team Shane Thank you.
The opportunity and the imperative to embrace lean more deeply both within our four walls and with our partners suppliers and customers is really stood out to me over the last several months, we've been taking a harder look at our operating rhythm moving towards a more frequent weekly and monthly cadence for each of our P&L.
Yes.
This has helped us manage the business in real time, and deliver better faster and more efficiently and what is clearly a dynamic environment.
The process capability improvements are real taking last quarter's example, the additional 20% of existing engineers that we've re prioritized to support delivery.
Through daily management, they are helping solve problems closer to the point of impact faster and thats improving engine deliveries.
Engine output was up double digits sequentially with leap units up over 50% sequentially.
A credit to the entire team, especially those in our supply chain organization.
However, the post pandemic.
Recovery requires continued sequential improvements for the foreseeable future, which our lean efforts will help us deliver.
We have a similar story in services, where internal shop visits grew 10% sequentially and more than 30% year over year lean helps us reduce cycle time improved turnaround time and generate capacity for more.
In addition to strengthening our operating rhythms to meet this extraordinary industry demand, we updated our strategic plan.
Month with an eye toward how we continue to shape the future flight for years to come.
The quality of our technology and product roads, coupled with the energy and collaboration in the room have me even more excited about what this business will become when it's a standalone aerospace leader.
First things first of course with respect to the post COVID-19 ramp, but this is a business with an exceptional future.
Turning to total company results on slide three.
Orders declined 7% driven by a tough comp at renewables against prior year Mega deals.
Sure wind, excluding renewables orders were up 8% and positive across all segments.
Revenue was up 7% with particular strength in services up 20 looking.
Looking at the segments Aerospace and healthcare were both up double digits as the market recovery continued in our pricing and delivery actions took hold.
This was offset by power down mid single digits, and renewables down 10% largely due to lower U S volumes, resulting from the PTC labs, and our heightened new business activity.
Collectively supply chain and macro pressures adversely affected revenue by about four percentage points in the quarter easing slightly again.
Adjusted operating margin declined 190 basis points strength at aerospace from volume and price was more than offset by renewables, which included about $500 million of higher warranty and related reserves tied to fleet performance, which will address shortly.
Excluding this impact margin expanded by 80 basis points healthcare improves sequentially and power declined year over year due largely to plan services outage seasonality.
Adjusted EPS was down excluding the 40 40 renewables reserve EPS was <unk> 75.
Free cash flow was $1 $2 billion, largely driven by strong adjusted earnings we've continued to build inventory as we prepare for the fourth quarter ramp and continue to work through ongoing supply chain challenges.
All in all I'm pleased with how the GE team has continued to navigate a tough operating environment.
And for the year were maintaining our prior outlook for revenue trending towards the low end of our high single digit growth range.
We now expect 125 to 150 basis points of operating margin expansion and $2 40 to $2 84 EPS. This.
This is primarily driven by the higher warranty and related reserves that renewables this quarter in.
And aligned with the color we shared in the second quarter, we're expecting free cash flow this year of about $4 $5 billion.
Turning to <unk>.
Power is a stable cash generator as gas utilization grows our ongoing focus on services at steam take route the continued turnaround progress at power conversion and innovation at nuclear.
Now more on renewables, where we've all been disappointed with our year to date performance.
Our proven leadership with Scott <unk> and his team at the helm is leveraging the lessons from their power playbook to transform renewables fundamentals.
Let me break down how we are going to improve performance there.
Recall, we look at this in three parts onshore wind offshore wind and grid.
I'll take those in reverse order grids.
Grids of $3 billion business.
Which will be the first to profitability market demand in automation and hardware remains strong. This year, we expect double digit orders growth and thanks to our cost efforts significant margin expansion along with profitability here in the fourth quarter setting up 2023 is a profitable year for grid.
At offshore we're transitioning from a new product investment into a business with roughly $1 billion of revenue and growing.
Roughly 80 turbines, we installed and commissioned for EDF recently, we're on schedule and we.
Now shifting to the seven gigawatt Hollywood X backlog, knowing our initial 200 deliveries will be challenging financially in an inflationary environment.
But as we move to the next tranche of projects and reduce cost we expect to approach profitability in offshore in the mid twenties.
Finally onshore is a $9 billion revenue business more than 60% of the segment today and most of the operating loss. This is the battleground.
Overall for renewables, we expect to achieve profitability in 2024.
We quickly innovated in the fast growing onshore wind industry, introducing larger turbines to provide leading performance and competitive project economics for customers.
Since 2017, we've added over 40 gigawatt to the grid.
Increasing megawatt hours per turbine significantly.
However, like most of the industry, such rapid innovation strange manufacturing and the broader supply chain it.
It takes time to stabilize production and quality on these new products, which in turn pressures fleet availability.
We need to industrialize faster to counteract these dynamics and we are.
First were drastically simplifying and standardizing to many variance into what we call workhorse products. So we and our suppliers can implement more repeatable manufacturing processes.
This enhances product quality and reduces cost.
And our existing fleet deploying corrective measures enhancements and monitoring repair programs to deliver high <unk> availability consistently.
We expect to implement the corrective measures associated with these warranty related reserves over the next couple of years.
With fleet availability as our true north will continue to be a leader and deliver for our customers.
Second as we've talked about in the past, we're being more selective about where we play going after fewer markets, where we have the right product and service capabilities and can execute profitably, including focusing more on equipment only projects.
We're also seeing improvement in both orders and sales pricing.
Third we're reducing fixed costs were.
Our decrease in global head count in onshore wind by about 20% and more broadly de layering it renewable energy.
Across <unk>, we're expecting about $500 million of annualized savings from our $600 million restructuring program, we plan to implement over the next few years.
Reflecting on the broader market. When we spoke just 90 days ago, the prospect of significant U S climate legislation this year was unlikely.
Recent months have been game changing the inflation reduction act provides much needed certainty and stability for us and our customers, especially in onshore wind.
The <unk> $370 billion in tax credits over the next decade aligned tightly with GE is de carbonization technologies.
Additionally, the <unk> infrastructure and investment jobs Act provides at least $75 billion for investment in grid nuclear and breakthrough technologies.
In Europe , we're seeing more urgency and pragmatism to reduce emissions and make energy more resilient.
Take the new European taxonomy, which reinforces the important role of gas and nuclear alongside renewables.
As Europe looks to swiftly address energy security concerns customers want to engage ges full technology roadmap, including wind gas fuel blends and grid.
While these external catalysts won't factor into our results overnight they improve the demand and economic profile for our business is remarkably.
To that end, we see a robust future in contrast to the current orders trough.
Altogether, we are at a significant inflection point for onshore and renewables overall.
While we expect renewables to achieve profitability in 2020 for about a year later than planned previously we remained very excited about <unk> future.
With that let me hand, it over to Carolina.
Thanks, Larry turning to slide five I'm, sorry, the insights from the quarter on an organic basis.
But orders were down 7% revenue was up high single digits with double digit growth in aerospace and healthcare.
Equipment declined 6% with continued U S onshore volume pressure.
Actually planned decrease at power.
On a sequential basis revenue increased more than half a billion as we're making progress on our second half ramp.
Services was a bright spot with orders and revenue up double digits and growth across all segments.
Aerospace led the way with orders up 28% and revenue up 33% as market demand remains strong.
Services represent half of our revenue and an even larger percentage of our backlog.
Overall adjusted margin contracted 190 basis points.
It was largely driven by the renewables reserves, which impacted margin by 270 basis points.
If we exclude this margin would have expanded 80 basis points.
Our actions are taking hold and we are seeing early signs of supply chain easing.
Volume together with price contributed almost 300 basis points of margin expansion offsetting headwinds from inflation and logistics costs.
Aerospace was a major contributor up 280 basis points with strength in services.
Adjusted EPS was down 18.
Excluding renewables reserve it would have been up 22.
Continuing EPS was negative primarily driven by an insurance transaction, which I'll cover momentarily and separation costs as expected.
Regarding our update to the margin and EPS outlook, we are now including additional pressure from the elevated warranty and related reserves at renewables.
About half of these charges is incremental to our prior view.
We also expect to offset healthcare pressure largely due to inflation and investments with strength in the other businesses.
Moving to cash.
We generated free cash flow of $1 2 billion.
Strong adjusted earnings contributed to this.
Working capital again had a very limited impact on free cash flow despite high single digit growth this quarter.
Looking at the dynamics.
Yes.
The use of cash our terms with focused on collecting the accounts receivable from second quarter, improving year over year DSO by two days.
But deliveries continued to nature in the quarter, resulting in high quarter and receivable balance.
Inventory was also use of cash. This is typical as we build for significant fourth quarter volume, leading to inventory and accounts payable growth.
Progress was the source.
Mainly due to the timing of down payments.
Contract assets was also a source.
Continued strength in aerospace and gas power utilization drove billings.
SG&A was positive $300 million.
Given the year to date impact another fourth quarter estimate aligned with the current air Framer aircraft delivery schedules, we now expect full year MD&A. So today about zero.
Year to date free cash flow is approximately $500 million in the fourth quarter, we expect higher collections given the launch of a sizeable balance and reduced inventory due to the strong quarterly deliveries. So in line with typical seasonality and our operational efforts.
Quarterly cash flow will be significantly higher and we expect free cash flow of about $4 5 billion for the year.
This is aligned with the color we shared last quarter.
Now a moment on <unk>.
Adjusted costs were down over 50%.
This was primarily driven by lower EHS, and other costs and progress and functions and operations.
For the year, we expect corporate costs.
The 700 million. It includes a few hundred million of favorability, primarily from interest rates and FX dynamics.
As we prepare for the planned spin Ehealth, Ken we're looking at our corporate costs to ensure what remains is sized appropriately.
Before we plan to take restructuring actions to reflect today's suggested for corporate led activity and footprint.
The program is expected to deliver roughly $450 million in annualized cost out over the next few years is about $700 million of expense the majority in the fourth quarter.
At the insurance can we further de risked our portfolio by terminating several reinsurance contracts.
This reduces counterparty risk and improves administration settling hours from the reinsurer in exchange for $2 5 billion of assets that we can deploy and our current investment strategy.
Given the assets need to be transferred at fair market value and the current rate environment.
It was an after tax charge of roughly $300 million.
We expect to recoup this overtime as the assets mature.
While excluded from our adjusted results.
<unk> insurance net income was roughly $250 million loss and without the charge was approximately positive $80 million.
This quarter, we also completed our annual <unk> as expected. This resulted in a positive margin, but no impact to earnings for the third consecutive year.
In discontinued operations, we recorded charges of about $100 million in our runoff Polish BPH mortgage portfolio, primarily driven by unfavorable results for bank and ongoing litigation with borrowers.
This brings total litigation reserves related to this matter to approximately $1 1 billion.
Now turning to our businesses.
Aerospace.
Aerospace delivered a very strong quarter.
Orders growth of 6% was driven by services.
Equipment orders were down against the tough comp, especially in military.
Revenue was up 25% led.
Led by substantial growth in commercial services up 47%.
This was driven by internal shop visit growth strong spare part sales to our external MRO and favorable price.
Commercial engine revenue also grew significantly on higher shipments plus year over year and sequentially.
Leap shipments improved.
Over 100 units sequentially, and we're starting to see better flow through our factories.
Military revenue was down year over year, driven by lower shipments in engine mix. However.
Angela will improvements on two 700 helped drive a sequential increase in engine units.
Segment margin expanded 280 basis points, driven by commercial services growth and favorable price cost.
This more than offset the negative mix from higher commercial engine shipments and increased growth investments.
Based on strong year to date performance and continued improvement in services.
Full year aerospace margins to the high teens with greater than 20% top line growth.
Overall.
Aerospace strong market growth and business fundamentals reinforced the significant long term opportunity here.
Turning to renewables.
We're down 40%.
Recall, we had record orders last year due to offshore for the project driven profile remains uneven making this a difficult comparison.
Importantly services, excluding <unk> grew double digits.
And all great product lines.
<unk> declined 10% over two thirds was driven by lower U S volume at onshore from the digital apps and our heightened new business selectivity.
This more than offset services growth of 40% and better pricing across many businesses.
Segment margin declined significantly year over year, primarily driven by the warranty and related reserves at onshore.
Remainder of the decline was driven by lower U S volume at onshore and net inflows in pressure in all businesses.
Excluding onshore, though all businesses improved reported profitability yet.
While we previously included about half of this elevated reserve in our full year expectations. The incremental impact this quarter is pressure versus our prior view.
We now expect an annual loss of about $2 billion.
The irony is a significant catalysts medium to long term however, near term customers continue to defer investments into the future impacting orders and associated cash.
By 2022 have been disappointing the actions, we're taking combined with the external catalysts, we've discussed puts us on a much stronger footing as we head into 2023.
Moving to power.
As expected we are managing through a lower CSA outage year typical third quarter seasonality and second half timing dynamics for some equipment deliveries and service outages pushed to the fourth quarter.
Looking at the market global gas demand.
Utilization grew mid single digits year to date with strength in Europe and in the U S.
While we continue to monitor gas prices and availability gas remains a fuel of choice on dispatch curve globally.
Clothing electricity demand.
In the third quarter orders were up 20% this was driven by higher.
And Aero derivative units of gas and services growth in all businesses.
Importantly, our team continues to prioritize disciplined underwriting and project selectivity as we've been our installed based pipeline.
And as I said equipment orders remain uneven quarter to quarter.
Revenue declined 5%, primarily driven by gas equipment and still while we continued to exit our new build business reshaped.
We shipped two fewer agents and two fewer aero units yet.
Meanwhile, services grew 6% driven by gas.
Price and transactional services growth offset the lower.
Expected CSA outage volume.
Segment margin declined 100 basis points.
This was mainly due to lower outages and unfavourable equipment mix at gas.
Together more than offsetting the price escalation.
Margins continued to improve driven by selectivity and the associated cost out.
Looking at the fourth quarter, we continue to expect significant sequential and year over year growth in equipment and services.
<unk> power up to deliver its outlook of low single digit revenue growth and margin expansion and power remains on track for earnings growth and cash generation this year and next.
Now I'm happy to welcome Pete who will cover health care.
Thanks Carolina, it's a pleasure to join you and Larry on the last earnings call before health Care's planned spin, which is on track for the first week of January .
Our team has made excellent progress preparing GE healthcare for its future as an independent public company.
We achieved several milestones in recent months, including establishing our board of directors with deep healthcare expertise diverse leadership and financial experience I look forward to working with them as we hit the ground running together and GE Healthcare's next chapter of growth and value creation.
Another key step in the process was our public form 10 filing this important disclosure details our historical pro forma financials for GE healthcare at both the segment and total company level.
We also disclosed our planned capital structure, we expect our go forward financial policy will incorporate a strong investment grade rating for the company and while we expect to prioritize deleveraging near term, we believe our solid financial position provides us significant flexibility to continue to invest in the <unk>.
Business.
We will share more on our strategy at our December eight Investor day, with senior leadership team and I look forward to meeting with many of you and discussing our vision as we work to drive better outcomes for patients and productivity for customers in the years ahead.
Moving to our performance overall.
Overall, <unk> delivered a strong quarter with sequential improvement topline growth across the business reflects the tireless work of our teams and partners to address supply chain constraints and improve product fulfillment.
Market demand and backlog conversion remained positive despite inflationary and supply challenges that continue to impact the industry.
We're speaking with our customers regularly and watching their behavior closely they.
They have been impacted by higher costs, particularly around labor.
This makes the imaging and ultrasound products, we provide more important than ever based on their ability to deliver increased productivity for providers.
Looking at customer trends global public spending in health care as solid, particularly in Europe , and Asia and the U S customers are taking a more cautious approach as they monitor the economic environment.
Overall continued patient demand is leading providers to invest in products and services that increase productivity and reduce operating costs, an important dynamic as healthcare systems modernized post pandemic and prepare for increased demand longer term.
That said, we're keeping a keen eye on provider performance in procedures, which continued to improve sequentially.
Looking at the quarter orders increased 4% year over year with sequential growth service was strong up low double digits equipment was negative to due to a reclassification of certain upgrades from equipment to services plus a tough comp year over year.
Organic revenue was up 10% year year over year with sequential growth equipment and services were both up low double digits year over year and imaging and ultrasound were bright spots currency negatively impacted reported results by five points.
Near term, we're focused on commercial execution improvements in NPI launches, notably GE healthcare recently topped the Fda's list of authorized artificial intelligence and machine learning enabled medical devices. Our commitment to innovation continues with quarterly R&D spend up double digits year over year, helping us.
Accelerate our long term growth plans.
Segment margins declined to 15, 4% year over year due to ongoing supply and inflation impacts.
Sequential margins have improved since the first quarter driven by higher volume price and a continued focus on reducing costs.
We've now delivered two consecutive quarters of positive price.
And orders price, which also remains positive.
We've been offsetting supply constraints by embedding lean throughout our business one way, we monitor supply dynamics is through red flags identifying lines of.
Risk of a shortage if not replenished within 10 days and these have declined nearly 40% since last quarter we've.
We've also broadened our supply base and re qualified and redesigned over 7000 parts driving positive results, while challenging we expect supply chain pressures to improve for the remainder of 'twenty two into 'twenty three.
With the spin approaching we thought it would be helpful to provide some color on GE healthcare's cash performance keeping in mind, our customer needs, we work with suppliers to stock up on critical inventory year to date and continue to manage inventory in an inflationary environment.
In total our quarterly free cash flow grew slightly year over year and sequentially. Our actions leave us confident that we can meet fourth quarter customer demand.
For the full year, we still expect mid single digit revenue growth at the same time higher inflation currency and investments are impacting operating profit, which we now expect to be $2 $6 billion or more.
And we expect free cash flow in a range of $2 one to $2 3 billion based on the higher inventory build to meet to meet demand in the fourth quarter and into 2023.
In closing our team is highly energized as we approach this new chapter we're confident in the plan spin will unlock significant shareholder value, enabling us to prioritize R&D investment grow faster and operate.
Optimize our operating model and so with that Larry I'll hand, it back over to you Pete. Thank you I share your excitement I think we're going to have some fun.
I'd like to close on slide 12.
<unk> continued to build momentum in the third quarter Aerospace delivered a very strong quarter renewables is taking action to reset.
For profitable growth power remains on track for stable earnings and cash and healthcare as Pete just outlined improved performance.
Leanne and decentralization are key enablers of this momentum driving safety quality delivery and cost improvements.
Which serve as the foundation of all we do at GE.
And these improvements are sustainable.
I'll take my 2021 Kaizen week team at limb.
One year later the team has enhanced our closed loop machining process on the T 700 mid frame.
Now, while there's always more to do this process is delivering close to 100% first time yields compared to about 60% previously.
<unk> and sticks, and we're scaling it across lines sites and businesses.
And with that Lean Foundation.
<unk> continues to lead with innovation.
At Aerospace we completed testing on our second 100 adaptive cycle engine partnering with the U S. Air Force. It is an innovative engine that pairs power with efficiency.
Health care made further progress in the homecare space expanding its alive core relationship and announcing a new collaboration with AMC health to enable remote patient monitoring.
And power secured an order from Kindle energy to provide age class power generation equipment. This will help support Louisiana's ongoing energy transition initially fueled by natural gas with the ability to use up to 50% hydrogen by volume.
It's clear our businesses are creating a smarter and more efficient future of flight.
Driving de carbonization through the energy transition and enabling precision health care.
And we're set to unleash their full potential through our plans to launch three independent investment grade industry leaders, starting with GE healthcare and just two short months.
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 just one question. So we can get to as many people as possible on this busy earnings day, Denise can you. Please open the line.
Ladies and gentlemen.
You wish to ask a question please press <unk>.
One on your telephone if your question has been answered or you wish.
Two weeks ago. Your question please.
Zero.
Okay.
The first question comes from Nigel Coe from Wolfe Research. Please go ahead.
Oh, Thanks, good morning, everyone.
Thanks, Good morning Nigel.
Morning.
So I'll take the one question on the <unk>.
April .
Just want to confirm the the charge in the quarter, that's sufficient to cover the entire scope.
The book needs to be done.
But my real question is on the restructuring charges that you've laid out.
Is that sufficient to return the business to breakeven or better with stable markets or do we need the U S onshore markets recover to get.
Back to profitability.
Nigel Let me, let me take that.
In order.
What we have laid out today, while we've been working on all year really puts us in a position for on shore wind to be profitable in 2024, that's not the end state, but it's an important way for us given recent performance obviously.
The charges that we're taking here the $500 million.
Is geared toward resolving the fleet availability issues that we've touched on.
I think that gives us ample room to turn to what we need to deal with and move forward from there.
That not only helps us with fleet availability, but the other design and manufacturing improvements we referenced in addition to the restructuring or what really set us up.
To be more profitable.
And to be flat out profitable in 2024. So next year will be another year, where we'll probably have parentheses around the op profit numbers, but then we get to where we need to be in 'twenty, four and we'll move on from there.
Really arent expecting in the short term purely it touched on this.
Meaningful help from the IRS and back we're going to we've seen some business move from 'twenty two to 'twenty three as a result of customers, taking a pause waiting for the incentives that they will enjoy in all likelihood next year the way that they couldn't access this year, but we've never had more clarity we've never had.
I think better visibility about U S government support for onshore wind than we do now for the rest of the decade, but none of the operating actions that we've highlighted here.
Our.
Relying on that that legislation remember we didn't think that was going to happen. When we talked to you in late July right that was a pleasant third quarter surprise. So everything we've been doing operationally is geared toward a lower.
Level of volume profitability in that context, but the inflation reduction act just I think improves the prospects for this business for a decade.
Meaningfully.
Great.
Thanks next question.
Thank you.
Question comes from Anthony Petrone from Mizuho Group. Please go ahead.
Thanks, and congratulations to the team on getting too close to the first bandwidth E health care.
So this question will be for Pete and he'll mode on the call <unk>.
Just as we head into spin here, we've had a number of companies in the medical device space report already as well as several large hospital customers.
And I think I would classify the environment right now is highly mixed.
And still a lot of variables out there certainly as it relates to 2023.
Specifically last week, we had two large hospital operators.
To not issue guidance on the flip side some of the medical device companies have actually posted slightly better procedures, turning to the GE healthcare business sequentially. It actually it looks like orders improve a bit.
So with that as context, maybe gesture background as the company speaks to its hospital customers and maybe just a very early view on your high level thoughts on 2023, thanks, a lot and congratulations to the team again.
Anthony Thanks for the question, Yeah look to your point as I mentioned in the prepared comments exiting Q3, we see a positive global growth market backlog price improving but we are watching this evolving environment, particularly in the U S.
The public markets outside of the U S and EMEA and Asia, particularly China. There is actually a reason amount of stimulus money or post COVID-19 investment that's going in to increase growth but.
We see the patient demand.
From some of the different reports that's out on the street, both from Med Tech as well as other providers to be.
Showing incremental growth.
Obviously theres been some increases in cost of labor, but but that seems to be subsiding and so im out pre regulate speaking with customers and we still see a reasonable amount of pent up demand within the within the system I think we all realize that year over year 'twenty one to 'twenty it's acts.
Really a tough comp it was a pretty big recovery and procedures as well as equipment growth.
So we're still seeing if you look at.
Our two year stack, we're still seeing double digit growth versus 20 in 2019, so keeping a sharp eye on it for sure look relative to 'twenty three.
Obviously talk a lot more about our strategy on December eight.
And then we'll plan to talk about our guidance in a normal time periods at the end of the Q4 announcements. Thanks again for your question.
Thanks next question please.
Thank you. The next question comes from Andy Kaplowitz from Citigroup. Please go ahead.
Hey, good morning, everyone.
Good morning.
Cash in Q3 was higher than your own expectations coming in but you mentioned that you plan to take I think a $1 billion plus of additional restructuring between corporate and renewal of the the majority of the corporate restructuring in Q4. So how do we think about the right sizing of your businesses in the context of cash and I know, you've clearly said you need to assess what your cash.
Generation would look like what does that all 7 billion plus guidance for 'twenty, three but could you give us more color into the puts and takes of how to think about cash going into 'twenty three versus the $4 five this year.
Okay. So.
Sure I understood. The question. So you were talking about how we get to the cash in 2023.
Okay. So we've talked about the different businesses, where we are.
Just to comment on the restructuring so the restructuring that we take this you are right.
Cash will impact 2023, and probably also 2024.
That said with where we are now we have strong momentum going into 2023, and we have talked about.
<unk>, a significant improvement of both profit and cash for 2023.
Still holds.
Look at it business by business Aerospace clearly on a big risk.
Rebounds from from Covid, and then unprecedented ramp which will continue into next year. We have health care, just mentioned that still strong orders and executing on the backlog. So that will continue to go into 2022 and <unk>.
On renewables.
As we take the charge is one thing, but we will also expect to start to see the impact from both the improved availability I'll now product as well as the cost out that we mentioned earlier today, you'll start to see that improvement and then <unk>.
I would say, we expect services to continue to grow and continue to improve grid to being profitable and you put all of that together.
And I would add to that also the working capital opportunity.
Reducing inventory.
Put all that together in the midst of that strong improvement in 2023.
And Andy I think our current intent now that have just come out of our strap plan cycle and are heading into budgets here over the next several weeks is to effectively do what we've I think.
During the last several years and provide that that forward looking outlook.
Cash and everything else at fourth quarter earnings in January .
Great Denise next question.
Thank you next question comes from front end to keep from Alliance Bernstein. Please go ahead.
Good morning, all thanks for taking my question.
I just wanted to touch base real quickly on the.
The right sizing for the onshore wind business, how should we be thinking about longer term competitive implications of having a smaller business here.
You're setting yourself up for a scale disadvantage down the road.
Brandon I'm, sorry, yes, the last part of that again please.
Okay.
Is there a risk of GE onshore being at a disadvantage from a scale perspective.
Down the road.
Brendan.
Thank so whatsoever I think that in many respects one could argue that it has been the pursuit of scale.
That has led us in part to our current Underperformers.
We have led the last several years as you know well here in North America.
In the U S.
Market, where we've got a home field advantage it tends to be one of the better geographies and the entire onshore wind space.
And I think all you're really seeing is due.
With respect to the restructuring the selectivity efforts.
The change in our product Roadmaps is to really make sure that we are in a position to lead through this orders trough, particularly in North America.
But come out of it not only with better products.
Better value propositions that our cost structures, but ultimately better performance as we move forward here both for our customers and investors I don't think that anything that we're doing here does anything to undermine our competitiveness I would argue it will enhance our competitive competitiveness, particularly at a time when.
I think.
Many customers are looking for we're here when the IRS kicks in and we're going to go quickly from a trough period to a time of scarcity.
Where it won't be about one upsmanship respects speckman chip.
Really it would be about reliability.
We're going to lead in that fashion, we can be better than we than.
We are today and I know Thats, what Scott and the rest of the onshore wind team are committed to it may mean that we don't play in as many markets as we have historically I think that'll be a good thing because we have no intention of being all things to all people in any of our businesses, that's particularly important.
In onshore wind I think it's part of what <unk> seen Scott and the team do effectively and running what we refer to as the power playbook as they transform that business and Thats certainly going to be an important part of the program and onshore wind and frankly more broadly across renewables, but its particularly acute given the relative size of the operating loss today.
In onshore.
Okay. Denise next question.
Thank you next question comes from checked track vertical research. Please go ahead.
Thank you and good morning, everyone.
Hi, Jeff.
Good morning, Hey.
Maybe just a little bit more color on Aero just.
Couple of things jumping out to me here today.
I think originally we started the year thinking a DNA would be kind of a $1 billion ish headwind and we're at we're at zero now for the year.
And then also just looking at the aftermarket right I don't expect you to speak to your competitors necessarily but.
<unk> posted 23% to 25% aftermarket growth here.
Ferrous numbers up 52.
So I wonder if you could just address both of those.
How we should expect a DNA to maybe track into 2023.
And if there was anything kind of unusual in timing, particularly in the spares business.
Yes.
Jeff maybe I'll take that.
The latter and I'll, let <unk> speak to the to the former.
But I think youre exactly right in terms of what we're seeing in aerospace Ryan, but overall revenues up 25%.
The business.
<unk> is facing welcome after the Covid.
Drought.
Accretable levels of demand, we know we're going to continue to see that in the fourth quarter and in in 'twenty three I think from an aftermarket perspective, specifically.
We've got a number of things that really helped us not only from a volume and frankly from a margin and cash performance. This quarter in the aftermarket shop visits were up year over year.
And sequentially the <unk>.
Scope within those shop visits.
It was more robust we saw favorable mix with respect to our parts business as well really I think is we and our partners and service to the airlines are trying to keep the current fleet in the air as as much as we possibly can so a little bit of a tampering with respect to the fourth quarter margins is.
We see some of that mix.
Moving the other way it will still be I think a more than respectable second half.
But.
We benefited a little bit in the third quarter, we will probably give up some of that in the fourth but that said I think the.
The operating mindset that we have is really to continue to drive.
Shorter turnaround times higher on time delivery and really do all that we can to help the airlines meet what has been clearly quite robust demand on the part of the flying public and having been with a number of these customers recently not only the airline leadership, but a number of others in the travel and leisure.
Hospitality spaces.
There.
Excited about the end of the year outlook here and going into 'twenty. Three so we want to be part of the solution in that regard and we're obviously well positioned to do just that Carolina, a DNA, yes, so geoff on it Youre right. When you referenced the 1 billion of headwind year over year, that's comparing 'twenty one to 'twenty two 'twenty, one we were half a million positive.
And if we were expecting to be about half a billion negative in 2022.
Way it has panned out is that in the <unk>.
Third quarter, we had about 300, a positive flow, which gets us to.
To date, the negative, but if we put the full year 2022, now natus expectation is that we would be flat any inflow.
If you then look into 2023, we do expect the famous to continue to deliver aircrafts from from inventory so that will be.
Headwind phosphate the outflows, but we also expect to engine deliveries from us to provide summit.
Some offset to that number and exactly where that lands. We talk to you more about when we guide for next year.
Thanks, Denise next question.
Thank you. Your next question comes from let's call it <unk> from Deutsche Bank.
Please go ahead.
Thanks, Good morning, guys.
Good morning, Nicole.
On the <unk> spin now that you guys are kind of expecting renewables to still have parentheses around the profit number in 2023 does that change at all the potential timing.
And just thinking about the rating agencies and how you guys want to be investment grade rated and follow up if that's okay.
It is what it would it benefit that business to start to see positive profitability before the spin actually is consummated. Thank you.
The call. We're again very much on track not only with the healthcare spin with Peter and team here early in the new year.
Bernd <unk> and early 'twenty four just as we laid out last November .
I think youre spot on.
Aspire to have all three businesses be investment grade as we move forward with the plan.
And that that framework that commitment very much intact, which is why I'm excited about both what were.
Doing operationally in terms of controlling the controllable we've touched on that a couple of times relative to our product strategy.
The fleet availability.
With the charge today, and obviously the restructuring that coupled with the.
Legislative support that we're seeing here in the U S and clearly the.
Enhanced concerns around the energy trilemma, particularly energy security in Europe , I think bode very well for renewables and all of <unk> right. We do a lot of things and I think increasingly as we talk to customers, particularly in this environment.
Our strategy, our breadth to help them navigate.
Sustainability.
Objectives security, let alone affordability concerns.
Couldn't be more timely so I think we feel good about those things within our control, which the print world, where otherwise, but I think it's very much an investment in the trajectory of this business, which again will be an investment grade business. So very much on track.
Denise next question.
Thank you.
Question comes from Steve Tusa from J P. Morgan. Please go ahead.
Hi, good morning.
Good morning.
Yeah.
So.
And are you or you're out in mid September talking about cash that was close to breakeven I mean, what what's the what was the swing factor in the last couple of weeks of.
For the quarter and then.
Can you just a quick one on health care, what what are you guys planning on doing with the proceeds or the stock that you are keeping on your <unk>.
Our balance sheet after the after the spin.
Thanks, Dave So, yes, if I compared to where we were in Laguna.
First of all I would like to sell them really proud of how the teams came together and performed to deliver $1 2 billion of free cash flow in the quarter.
And I would say overall the dynamics did play out and we've talked about them was more pressured than we did said monthly billings.
Being higher than we would've London pushing collections to the following quarter and we also had elevated material purchases to derisk that fourth quarter delivery and you said that on the inventory.
What was better than anticipated capital things.
We saw stronger aerospace performance higher earnings and then it's going to be about services, so better services and especially on the spare parts side.
Then we also saw.
Stronger utilization, both on Aero engines, and gas turbines and that drove higher billings and higher collections and you can see that in contract assets.
We're also working to have more rigor on receivable daily management, and we actually managed to collect more than we thought so we reduced DSO by two days year over year, which was better than we thought across the businesses.
And then finally on SG&A.
Deliveries pushed relative to the forecast, which really meant that as opposed to the impact on our numbers.
So overall, that's what got us to $1 2 billion of free cash flow and Thats also part of what gives us confidence in reiterating to guide on that $4 5 billion of free cash flow for the full year.
Sure.
Your second question was on the healthcare persists.
So we've talked about that.
Keith part of health care.
But it's too early to tell.
What we're going to do with that we are.
<unk> capital allocation framework and the capital structure.
In due time, we'll come back to that in Chandler.
Okay. Denise next question please.
Thank you. Your next question comes from Andrew.
Okay.
Bank of America. Please go ahead, yes. Good morning. So you had a disclosure that in third quarter, you agreed to terminate substantially all long term care insurance exposure previous I sit at their single reinsurance company right. So $300 million after tax charge in third quarter. So I guess my question is.
As you've heard in other areas within healthcare and other parts of the business certain areas such as chips and other areas. Sometimes you just can't account on a consistent flow and in our case, where there might be a couple of thousand components that come into an MRI. The shortage of one or two pieces could lag that big chunk of.
Of equipment actually not get transferred and so thats part of what we've laid out we actually have a very strong backlog.
Denise let's try to get into more questions. A quick one first from I think can you go next.
Mentioned, a couple of the most important ones to start Glen So after working through the restructuring is one piece of it but also the sort of the workhorse in the industrialization will help improve the product and also how we installed the product you put you put all of that together you will see it.
So we do see some cash pressure.
Say 2022, but for 2023.
Think about it.
Greed positive and you Havent is significant improvement on the onshore inside you have I would say the continued decentralization and the restructuring actions there and so you put all of that together you will see a significant improvement in 2020 to me and Thats moving on then into 2024 and <unk>.
2020 for basically the restructuring is complete that you will see the full benefits and.
We expect to see a big Irene.
Demand volume coming through some of that probably in 2020.
The majority of that coming in 2024, and you know with with those with.
With the new orders you get.
Progress payments as well.
So that's how these steps have been through 'twenty two 'twenty three 'twenty four on profit and also on cash.
And I think clearly.
We're feeling the the other side of that in the absence of <unk>.
Healthy order book with the PTC lapse, all the more given some of the postponement that we've seen here of late relative to business. We anticipated this year, but I think <unk> got it right, we'll be in a more normal.
Environment in terms of the order book and the attendant flows I also think some of the product rationalization that we've hit on will help us from a working capital perspective, as well right with the.
The variance in the.
Extreme customization that we've fallen two in a couple of areas.
There is no way that Hasnt had is carrying more inventory than we aspire to to carry in this business. So a lot that we can do but again I think the the template that <unk> seen over the last several years at power is a pretty good roadmap here for what we are working on and what Youll see.
More clearly in the financials in that business.
The next several years great Denise last question. Please.
Thank you next question comes from Deane Dray from RBC. Please go ahead. Thank you and good morning, everyone. Thanks for squeezing me in.
Hey, David.
Good morning.
Larry could you give us an update on the 23 planning cycle you said the strat plans have been done you are in the budgeting process.
What's the macro youre, assuming I know that's.
It's pretty fluid here and how would you describe the recession playbook for GE I know you've got 30 platforms, it's not cookie cutter, but any color there in terms of the resilience of the portfolio would be helpful. Thanks.
Dean.
Youre exactly right. We've just been through a couple of weeks with Renova in fact, just given the breadth.
The portfolio timely obviously in the wake of not only what's happening in Ukraine and in turn Europe , but also the iras.
We recently did the same with the aerospace team I think I referenced that in the prepared remarks, we actually ran through the health care strap plan earlier in our calendar that is normal simply to make sure. We have that as a front end load to all the subsequent work that Pete and the team have done in part D. The form 10.
That just came public I would say overall from a process perspective really really quite pleased in all three instances as to how far we've come over the last several years frankly to sharpening up.
Our strategic intentions around those critical questions you've heard me ask a lot over the years what game are we playing and how do we win.
I think that as we look at the macro theme, we don't have a unique house view here is too.
How things are going to play out I think like others. We're concerned just.
Around the host of issues that are out there, but that said.
At aerospace we have tremendous demand.
Again, the customers I speak to on a regular basis are quite bullish about their outlooks they need us to continue to support them and we intend to do that.
Sure you'll hear.
Later this week from our airframe customers and the ramps that are underway in new plane production, we want to do the same with with them. So we're not on mindful of the macro at aerospace, but we've got a lot of activity to work through and perhaps a little bit of a secular exemption to some of the near term economic.
Certainty, Peter I think spoke well to health care.
But here again post COVID-19.
In addition to the backlog work down that.
We will pursue I think health care modernization and Pete mentioned, China, I think we're going to see the same thing here in the U S. Europe also a priority I think that bodes well, particularly for how we play in precision health and then again given the support here in the U S.
Around the inflation reduction act, primarily for for wind and grid, but to a degree gas, but also theres more pragmatic approach to the trilemma I think is going to really help both renewables and power as we move forward and Thats not a 'twenty three dynamic so again I don't want to suggest that any of our businesses.
<unk> are insulated or immune from the broader economic context, but I do think we've got specific secular drivers. In addition to so much.
That is within our control to to work through it and that's what we're going to do we're going to control the controllable stay true to the lean agenda and put forward the best fourth quarter in about 2023, we possibly can.
Okay, Larry any final comments.
Steve. Thank you just to close here the team the <unk> team delivered again in the third quarter led by aerospace a very strong quarter.
<unk> are on track starting with healthcare in early January .
As Pete mentioned before then we hope to see many of you at RJ healthcare Investor day on the eighth of December .
And we do appreciate your time today your interest in <unk>, our investment in our company.
And we standby, Steve Carell and into the rest of the IR team to help as you consider GE and GE healthcare in your investment processes.
Thank you.
Thank you ladies and gentlemen. This concludes today's conference. Thank you for participating you may now disconnect.
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