GE defers $1B in 2022 free cash flow as renewables revenues drop 23%

General Electric Co.'s renewable energy revenues plummeted 23% during the second quarter, pushing about $1 billion of free cash flow out of 2022 and into 2023 as the onshore wind segment continues to face inflated prices, supply chain bottlenecks and greater U.S. policy uncertainty.

"The ongoing paralysis in Washington with the [production tax credit] expiration is hitting our most profitable market, impacting demand," GE Senior Vice President and CFO Carolina Happe explained during a July 26 second-quarter earnings conference call.

The company's renewable energy division, to be spun off in 2024 with the remainder of its energy businesses under the name GE Vernova, reported a second-quarter loss of $419 million, compared to a year-earlier loss of $99 million, while revenues fell to $3.10 billion.

GE reported orders for 261 wind turbines in the second quarter, both onshore and offshore, totaling 900 MW, compared to 398 turbines totaling about 1,500 MW in the prior-year quarter. The company also received orders for 68 turbine repowerings, less than one-fourth of the orders in second-quarter 2021.

"We knew coming into this year that renewables would be challenging," Happe said, emphasizing that GE is "taking swift actions to turn around this business."

Democratic lawmakers in the Senate have been working to agree on a slimmed-down budget reconciliation package with climate measures. But Sen. Joe Manchin, D-W.Va., said recently that he wanted to see August's inflation figures before deciding whether to advance hundreds of billions of dollars in clean energy tax credits.

An even smaller package extending existing solar and wind tax credits could be passed during the "lame duck" session of Congress after the November midterm elections, but Happe said GE expects them to expire at the end of the year, contributing to an additional $400 million "profit drain" during the second quarter. The company no longer anticipates a "step-up in profit" during the second half due to the impasse as well as inflated prices and investments in fleet durability.

"I think you're going to see a second half that resembles the first half more than we would like," GE Chairman and CEO Larry Culp acknowledged. "We've got to do a much better job in terms of modularity and design to not only improve quality and delivery, but frankly, to bring down unit costs. ... We can't chase every order."

GE is also escalating prices for "long-term service agreements where appropriate," Culp said, but it still will not "offset significant inflation pressure."

GE reported overall adjusted second-quarter earnings of 78 cents per share compared to adjusted earnings of 22 cents per share a year earlier. Analysts expected adjusted earnings of 42 cents per share, according to the S&P Capital IQ consensus mean estimate.

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