Carolina Dybeck Happe
Senior Vice President and Chief Financial Officer at General Electric
Thanks, Larry. Our results reflect our team's commitment to driving operational improvement. We're leveraging lean across GE and our finance function. In addition to Kaizen week that Larry mentioned, over 1,800 finance team members completed a full waste work week, applying lean and digital tools to reduce non-value-added work by 26,000 hours and counting.
For example, at renewables, our term streamlined and automated account reconciliations, intercompany settlements, and cash applications. This type of transactional lean frees up time, so we can focus more on driving higher-quality, faster, operational insights and improvements, helping our operating teams run the businesses more efficiently.
Looking at Slide 4, I'll cover on an organic basis. Orders were robust, up 42% year-over-year and up 21% sequentially on a reported basis, building on revenue momentum heading into '22. Equipment and services in all businesses were up year-over-year, with strength in Aviation, Renewables and Healthcare. We are more selective in the commercial deals we pursue with a greater focus on pricing in an inflation environment, economic turns, and cash.
Together with targeting more profitable segments like services, we're enhancing order quality to drive profitable growth. Revenue was up sequentially, with growth in services, driven by Aviation and Power, but down year-over-year. Equipment revenue was down with the largest impact in Healthcare and Power. Overall, mix continues to shift towards higher-margin services, now representing half of the revenue.
Adjusted industrial margins improved sequentially, largely driven by Aviation Services. Year-over-year, total margins expanded 270 basis points, driven by our lean efforts, cost productivity and services growth. Both Aviation and Power delivered margin expansion, which offset the challenges in Healthcare and Renewables.
Consistent with the broader market, we are experiencing inflation pressure, which we expect to be limited for the balance of '21. Next year, we anticipate a more challenging inflation environment. The most adverse impact is expected in onshore wind due to the rising cost of transportation and commodities, such as steel and resin, impacting the entire industry.
We are taking action to mitigate inflation in each of our businesses. Our shorter-cycle businesses felt the impact earliest, while our longer-cycle businesses were more protected given extended purchasing and production cycles. Our service business is falling in between. Our teams are working hard across functions to drive cost countermeasures and improve how we bid on businesses, including price escalation.
Finally, adjusted EPS was up 50% year-over-year, driven by industrial. Overall, we're pleased with the robust demand, evidenced by orders growth and our year-to-date margin performance. While we're navigating headwinds caused by supply chain and PTC pressure, these have impacted our growth expectations. We're now expecting revenue to be about flat for the year. However, due to our continued improvement across GE, we are raising our '21 outlook for organic margin expansion to 350 basis points or more and our adjusted EPS to a range of $1.80 to $2.10.
Moving to cash. A major focus of our transformation has been strengthening our cash flow generation through better working capital management and improved linearity, ultimately to drive more consistent and sustainable cash flow. Our quarterly results show the benefits of these efforts.
Industrial free cash flow was up $1.8 billion ex discontinued factoring programs in both years. Aviation, Power and Healthcare all had robust free cash flow conversion in the quarter. Cash earnings, working capital, and allowance and discount payments or AD&A, driven by the deferred aircraft delivery payment, contributed to this significant increase.
Looking at working capital, I'll focus on receivables, where we saw the largest operational improvement. Receivables were a source of cash, up $1.3 billion year-over-year ex the impact of discontinued factoring, mainly driven by Gas Power collections. Overall, strengthening our operational muscles in billings and collections is translating into DSO improvement, as evidenced by our total DSO, which is down 13 days year-over-year. Also positively impacting our free cash flow by about $0.5 billion in the quarter was AD&A.
Given the year-to-date impact and our fourth quarter estimate aligned with the current airframer aircraft delivery schedule, we now expect positive flow in '21, about $300 million, which is $700 million better than our prior outlook. This year's benefit will reverse in 2022, and together with higher aircraft delivery schedule expectations, will drive an outflow of approximately $1.2 billion next year. To be clear, this is a timing issue.
You'll recall that we decided to exit the majority of our factoring programs earlier this year. In the quarter, discontinued factoring impact was just under $400 million, which was adjusted out of free cash flow. The fourth quarter impact should be under $0.5 billion, bringing our full year factoring adjustment to approximately $3.5 billion.
Without the factoring dynamics, better operational management of receivables has become a true cross-functional effort. Let me share an example. Our Steam Power team recently shifted to this from a more siloed approach. Leveraging problem solving and value stream mapping, they have reduced average billing cycle time by 30% so far. So only two quarters in, more linear business operations, both up and downstream, are starting to drive more linear billings and collections. While we have a way to go, more linear business operations drive better and sustainable free cash flow.
Year-to-date, ex discontinuing factoring across all quarters, free cash flow increased $4.8 billion year-over-year. In each of our businesses, our teams are driving working capital improvement, which together with higher earnings make a real and measurable impact. Taking the strong year-to-date performance, coupled with the headwinds we've described, we're narrowing our full-year free cash flow range to $3.75 billion to $4.75 billion.
Turning to Slide 6. We expect to close the GECAS transaction on November 1st. This strategic transaction not only deepens our focus on our industrial core, but also enables us to accelerate our debt reduction, with approximately $30 billion in consideration. Given our deleveraging progress and cash flow improvement to date, plus our expected actions and better past year performance, we now expect a total reduction of approximately $75 billion since the end of 2018.
GE will receive a 46% equity stake in one of the world's leading aviation lessors, which we will monetize as the aviation industry continues to recover. As we've shared, we expect near-term leverage to remain elevated, and we remain committed to further debt reduction and our leverage target over the next few years.
On liquidity, we ended the quarter with $25 billion of cash. We continued to see significant improvement in lowering GE's cash needs, currently at $11 billion, down from $13 billion. In the quarter, taken these decrease, due to reduced factoring and better working capital management, this is an important proof point that we are able to operate with lower and more predictable cash needs, creating opportunities for high return investments.
Moving to the businesses, which I'll also speak to on an organic basis. First, on Aviation. Our improved results reflect a significantly stronger market. Departure trends recovered from August. It's early, but the pickup that began in September is continuing through October. Better departures and customer confidence contributed to higher shop visits and spare part sales than we had initially anticipated. The impact of green time utilization has also lessened. We expect these positive trends will continue into the fourth quarter.
Orders were up double digits. Both commercial engines and services were up substantially again year-over-year. Military orders were also up, reflecting a large Hindustan Aeronautics order for nearly 100 F404 engines along with multiple T700 orders.
For revenue, Commercial Services was up significantly, with strength in external spares. Shop visit volume was up over 40% year-over-year and double-digits sequentially, with the overall scope slightly improved. We continued to see higher concentration of narrow-body and regional aircraft shop visits. Commercial Engines was down double digits, with lower shipments. Our mix continues to shift from legacy to more NPI units, specifically lead [Phonetic], and lower production rates on GEnx. We're also navigating through material fulfillment constraints, amplified by increased industry demand, which impacted deliveries.
Military was down marginally. Unit shipments were flat sequentially, but up year-over-year. Without the delivery challenges, Military revenue growth would have been high-single digits this quarter. Given this continued impact, Military growth is now expected to be negative for the year.
Segment margin expanded significantly, primarily driven by Commercial Services and operational cost reduction. In the fourth quarter, we expect margins to continue to expand sequentially, achieving our low-double-digit margin guide for the year. We now expect '21 shop visits to be up at least mid-single-digit year-over-year versus about flat. Our solid performance, especially in services, underscores our strong underlying business fundamentals as the commercial market recovers.
Moving to Healthcare. Market momentum is driving very high demand while we navigate supply chain constraints. Government and private health systems are investing in capital equipment to support capacity demand and to improve quality of care across the market. Building on a 20-year partnership, we recently signed a five-year renewal to service diagnostic imaging and biomedical equipment with HCA Healthcare, one of the nation's leading providers of healthcare. Broadly, we're adapting to overarching market needs of health system efficiency, digitization as well as resiliency and sustainability.
Against that backdrop, orders were up double-digits, both year and versus '19, with strength in Healthcare Systems, up 20% year-over-year, and PDx up high-single digits. However, revenue was down with a high-single-digit decline at HCS, more than offsetting the high-single-digit growth we saw at PDx. You'll recall that last year, the Ford ventilator partnership was about $300 million of Life Care Solutions revenue. This comp negatively impacted revenue by 6 points. And thinking about the industry-wide supply shortages, we estimate that growth would have been approximately 9 points higher if we were able to fill our orders. And these challenges will continue into at least the first half of '22.
Segment margin declined year-over-year, largely driven by higher inflation and lower Life Care Solutions revenue. This was partially offset by productivity and higher PDx volume. Even with the supply chain challenges, we now expect to deliver close to 100 basis points of margin expansion as we proactively manage sourcing and logistics.
Overall, we're well positioned to keep investing in future growth, underscoring our confidence in profit and cash flow generation. We're putting capital to work differently than in the past, supplementing organic growth with inorganic investments that are a good strategic fit. These are focused on accelerating our precision health mission, like BK Medical, and we're strengthening our operational and strategic integration muscles.
At Renewables, we're excited by our long-term growth potential, supported by new technologies like Haliade-X and Cypress, and our leadership in energy transition despite the current industry headwinds. Looking at the market, since the second quarter, the pending PTC extension has caused further deterioration in the U.S. onshore market outlook. Based on the latest Wood Mac forecast for equipment and repower, the market is now expected to decline from 14 gigawatts of wind installments this year to approximately 10 gigawatts in 2022. This pressures orders and cash in '21.
In offshore wind, global momentum continues, and we're aiming to expand our commitment pipeline through the decade. And modernizing the grid is a key enabler of the energy transition. And we saw record orders, driven by offshore, where the project-driven profile will remain uneven. This leads to continued variability for progress collection. Onshore orders grew modestly, driven by services and international equipment, partially offset by lower U.S. equipment due to the PTC dynamics.
Revenue declined significantly. Services was the main driver, largely due to fewer onshore repower deliveries. Ex repower, onshore services was up double-digits. Equipment was down to a lesser extent, driven by declines in the U.S. onshore and grid. This was partially offset by continued growth in international onshore and offshore. For the year, we now expect revenue growth to be roughly flat.
Segment margin declined 250 basis points. Onshore was slightly positive, but down year-over-year. Cost reductions were more than offset by lower U.S. repower volume, mixed headwinds as new products ramp and come down the cost curve, as well as supply chain pressure. Offshore margins remain negative as we work through legacy projects and continue to ramp Haliade-X production. At grid, better execution was more than offset by lower volume. Due mainly to the PTC impact, we now expect Renewables free cash flow to be down and negative this year. Looking forward, while we are facing headwinds, we're intently focused on improving our operational performance, profitability and cash generation.
Moving to Power. We're performing well. Looking at the market, global gas generation was down high-single digits due to price-driven gas to coal switching. Yes, you heard me right, gas to coal switching. However, GE gas turbine utilization continues to be resilient as megawatt hours grew low-single digits. Despite recent price volatility, gas continues to be a reliable and economic source of power generation. Over time, as more baseload coal comes offline and with the challenges of intermediate renewable power, customers continue to need gas. Through the next decade, we expect the gas market to remain stable with gas generation growing low-single digit.
Orders were driven by Gas Power services, Aero and Steam, each up double digits. Gas equipment was down despite booking six more heavy-duty gas turbines as timing for HAs remained uneven across quarters. We continued to stay selective with disciplined underwriting to grow our installed base. And this quarter, we booked orders for smaller frame units.
Demand for aeroderivative power continues. For the year, we expect about 60 unit orders, up more than five times year-over-year. Revenue was down slightly. Equipment was down due to reduced turnkey scope at Gas Power and the continued exit of new build coal at Steam. Consistent with our strategy, we are on track to achieve about 30% turnkey revenue as a percentage of heavy-duty equipment revenue this year, down from 55% in 2019, a better risk-return equation.
At the same time, Gas Power shipped 11 more units year-over-year. Gas Power services was up high-single digits, trending better than our initial outlook due to strong seasonal volume. We now expect Gas Power services to grow high-single digits this year.
Steam services was also up. Margins expanded year-over-year, yet were down sequentially due to outage seasonality. Gas Power was positive and improved year-over-year, driven by services growth and aero shipments. We remain confident in our high-single-digit margin outlook for the year. Steam is progressing through the new build coal exit. And by year-end, we expect our equipment backlog to be less than $1 billion compared to $3 billion a year ago. Power Conversion was positive and expanded in the quarter.
Overall, we're encouraged by our steady performance. Power is on track to meet its outlook, including high-single-digit margins in 23-plus[Phonetic]. Our team is focused on winning the right orders, growing services and increasing free cash flow generation.
Moving to Slide 8. As a reminder, following the GECAS close in the fourth quarter, we will transition to one column reporting and roll in the remainder of GE Capital into corporate. Going forward, our results, including adjusted revenue, profit and free cash flow, will exclude insurance. To be clear, we'll continue to provide the same level of insurance disclosures. In all, this simplifies the presentation of our results as we focus on our industrial core.
At Capital, the loss in continuing operations was up year-over-year, driven primarily by a non-repeat of prior-year tax benefit, partially offset by the discontinuation of the preferred dividend payment. At Insurance, we generated $360 million in net income year-to-date, driven by positive investment results and claims still favorable to pre-COVID levels. However, this favorable claim trends are slowing in certain parts of the portfolio.
As planned, we conducted our annual premium deficiency test also known as the loss recognition test. This resulted in a positive margin with no impact to earnings for a second consecutive year. The margin increase was largely driven by a higher discount rate, reflecting our investment portfolio realignment strategy, with a higher allocation towards select growth assets. Claims costs curve continued to hold.
In addition, the teams are preparing to implement the new FASB accounting standard, consistent with the industry, and we're working on modeling updates. Based on our year-to-date performance, Capital still expects a loss of approximately $500 million for the year. In discontinued operations, Capital reported a gain of about $600 million, primarily due to the recent increase in AerCap stock price, which is updated quarterly.
Moving to Corporate. Our priorities are to reduce functional and operational costs as we drive leaner processes and embrace decentralization. The results are flowing through with costs down double digits year-over-year. We are now expecting corporate costs to be about $1 billion for the year, and this is better than our prior $1.2 billion to $1.3 billion guidance.
As you can see, lean and decentralization aren't just concepts. They are driving better execution and cultural change. They are supporting another strong quarter, and they are enabling our businesses to play more offense and ultimately, they're driving sustainable, long-term profitable growth.
Now Larry, back to you.
