GE Aerospace

Good day ladies and gentlemen and welcome to the General Electric first quarter 2019 earnings conference call. At this time all participants are in a listen only mode. My name is Brandon and I'll be your conference coordinator today. If at any time during the call you require assistance, please press star zero and a conference coordinator will be happy to assist you. If you experience issues with the slides refreshing or there appears to be delays in the slide advancement, please hit F5 on your keyboard to refresh. 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 Communications. Please proceed.

Thanks, Brandon. Good morning, all, and welcome to GE's first quarter 2019 earnings call. I'm joined by our Chairman and CEO, Larry Culp, and CFO, Jamie Miller. Before we start, I'd like to remind you that the press release, presentation, supplemental, and 10-Q have been available since earlier today for on our investor website. We're pleased to file our 10-Q in concert with our earnings, a practice we began in October with our third quarter earnings report. Please note that some of the statements we're making today 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 website, those elements can change as the world changes. With that, I'll hand the call over to Larry.

Steve, thanks. Good morning, everyone. and thank you for joining us. I'll begin with an overview of our first quarter performance and an update on our strategic priorities. Jamie will cover the quarter in greater detail, and then we'll take you through segment performance, and I'll wrap up before we go to questions. To start, as we said in March on our Outlook call, 2019 is a reset year for GE. As we make decisions and investments that will position us well for the long term, but will have near-term impact on our financial performance, particularly our cash flows. And while we have made some progress in the first quarter, delivering results ahead of our own expectations, especially on industrial free cash flows, this is largely due to timing of certain orders and customer collections we expected later in the year. You know as well as I do that one quarter is a data point, not a trend. The guidance we provided a month ago remains unchanged. It's early in the year, and this is one quarter in a multi-year transformation. In total, we are confident in our ability to deliver on our full-year expectations that we laid out for you last month during the outlook call. We continue to believe that our 2020 and 2021 financial results will be meaningfully better. With respect to the quarter, orders were up 9% organically due to strength in power, aviation, and oil and gas. Industrial revenue was up 5% organically, driven by growth in each segment, except for power. Industrial operating margins contracted 160 basis points organically, driven by declines in power, renewable energy, and aviation. And all of this resulted in adjusted EPS of $0.14 and GAAP continuing EPS of $0.11. Our adjusted industrial free cash flow was a negative $1.2 billion dollars. which was significantly better than our expectations. In power and aviation, orders and customer collections came through earlier than we had anticipated. While there were puts and takes, these timing items should balance out over the remainder of 2019. We had higher earnings than we expected and saw some improvements in execution, but again, it's early. I'll talk to this in more detail when I cover our strategic priorities on the next slide. Throughout the remainder of this year, we will make significant investments in our future, such as restructuring, which will be second half loaded. As we said on the outlook call, we have not planned for perfection, meaning we have built in general contingencies to cover potential shortfalls related to market and execution risks. However, the grounding of the Boeing 737 MAX was not included in our original planning and presents a new risk. With respect to the MAX, first, Let me express our deepest condolences to the families and friends of all those lost in the tragic accidents in Indonesia and Ethiopia. The flying public's confidence in the safety of flight is the foundation of the aviation industry, and we all take that responsibility as paramount. We have a strong partnership with Boeing. We are confident in the 737 MAX aircraft. We are working closely with Boeing through the recertification process, and while the planes are on the ground, we are conducting proactive scheduled maintenance on the engines. The timing of the MAX's return to service is uncertain, and we are carefully managing our own operations accordingly. Turning to slide three, this is a game of inches, and we have a long way to go. Yet we've made some progress in the first quarter on our two strategic priorities. We've taken action to improve our financial position. This includes the announcement of the sale of Biopharma to Danaher, which results in about $20 billion of cash proceeds and gives us flexibility and optionality on our remaining healthcare business, as well as the closing of GE Transportation, which delivered $2.9 billion in cash, while retaining approximately 25% stake in Wabtec, which we intend to monetize over time beginning in the second quarter. At GE Capital, we completed $1 billion of capital asset reductions. We paid down $2 billion of external debt and closed the MUFG transaction in the quarter. We have ended the quarter in a strong liquidity position with more than $30 billion of cash and industrial and capital combined. We still have work to do, but we are committed to running GE on a stronger financial foundation. Our other strategic priority is strengthening the businesses, starting with power. We're focused on running more empowered, accountable businesses that connect our operating plans to our customers' successes. The power turnaround is in the early stages as we adjust to market realities, move past some non-operational headwinds, and improve our daily execution. In our operating reviews, on our plant floors, and at our job sites, I see plenty of improvement opportunities and frankly take encouragement from the early signs of progress. such as deep assessments that are candid about where we're winning and losing, a reemergence of lean in all that we do, and a conviction on the part of this team that we can improve and we will win. We also booked about four and a half gigawatts of equipment orders at gas, power, and the quarter. These orders are primarily U.S. contracts at good margins. At aviation and healthcare, we're playing offense, and we saw continued order strength, with aviation up seven, and health care systems up five. In renewable energy, we're managing through the PTC cycle, which is creating cash headwinds at the business this year. But all the while, we continue to invest for the long term with our next-generation offshore and onshore wind platforms, the Hollyotte X and Cypress. And at capital, we continue to de-risk the portfolio. We settled the DOJ FOREA investigation of WMC for $1.5 billion and completed our insurance statutory cash flow test, and the $1.9 billion funding in line with our plan. Stepping back, GE has important, meaningful businesses operating from positions of strength. We have exceptional technology in which we continue to invest, with a valuable installed base in recurring revenue streams. Today, our installed base of approximately 70,000 aircraft engines, 7,000 gas and aero turbines, as well as more than 4 million healthcare systems and 40,000 onshore wind turbines, all of which help drive over 50% of our revenues, which come from supporting and servicing that installed base. Our digital team continues to unlock the value of that installed base by turning machine data into powerful insights and outcomes for GE businesses and our customers. Our backlog today stands at $374 billion. of 6% from a year ago. We have a global network of close customer relationships and a highly respected brand. Most importantly, we have a capable team showing grit, resilience, and commitment. So we made some progress in the quarter, but as I said, it's just one quarter in a multi-year journey. With better execution and a stronger balance sheet, we'll continue over time to create sustainable shareholder value. And with that, I'll hand it over to Jamie to go through the quarter in greater detail.