General Electric Company (GE) Earnings Call Transcript & Summary

Good morning. My name is Brendan Luecke, I'm the multi-industrials analyst at Bernstein. Thank you so much for joining us for the Strategic Decisions Conference. This morning, we're joined by Larry Culp, CEO and Chairman of the Board of General Electric since 2018. Prior to GE, he was CEO of Danaher for nearly 15 years. Larry, thank you so much for joining us again today. We very much look forward to the conversation.

Brendan, our pleasure. Thanks for the invitation. I've got a couple of slides to run through quickly, if that's all right, before we get into Q&A. Q&A is obviously the more interesting and usually the more enjoyable part of the session. But let me just give everybody a quick update on where we are today at GE. I think if you simplify the GE story today, it simply comes down to 3 leadership businesses well positioned to take advantage of what we see as a significant growth runway in Aviation, Healthcare and in Energy. Clearly, our Aviation business will shape the future of flight, always has, and we're committed to doing that over the medium to long term. But here, we sit really on the cusp of a post-pandemic recovery, both in utilization of the existing fleet. And as our major airframers preparing to ramp from here. In precision health care, I think we're seeing, from a post pandemic perspective, a serious commitment, both in public and private providers the world over to be serious about precision health, to modernize, to drive more digitization. GE Healthcare couldn't be better positioned to lead in that regard. And certainly, in the wake of everything that's happened in Europe of late, the energy transition, I think, is taking on a more pragmatic approach. And here again, GE's, I think, well positioned to lead. Here, we solve not for one dimension, but for really all 3 dimensions of the energy transition, what we call the trilemma: Sustainability, reliability and affordability. And given the range of technologies that we have in the space, well positioned as we move forward. Here's a look at the numbers by the 4 segments, the 3 businesses. We group both power and renewables together, we call that Energy Co for now. We'll brand that a little bit later on this summer. But you can see here, over $70 billion of revenue, over $425 billion of backlog, 80% of that in services. And we really like the fact that, that services footprint not only gives us those recurring revenues, but keeps us very close to our customers. So whether it's today's challenge is navigating all the cross currents that are out there, let alone preparing for the future in the 3 spaces I just outlined, these businesses are really well positioned to perform. The fact that the services space in each of the 3 is really where we make our better returns or better margins also sets us up from here for what may come, I think, on very strong footing. Brendan, we were talking earlier about the operating environment. I suspect those of you who are going to be here for 3 days, you're going to hear from virtually every CEO how difficult the operating environment is. I'm not going to belabor that point. We could talk about supply chain challenges, inflation, COVID in China. We can talk about the policy uncertainty in and around renewables. The situation, again, in the Ukraine. I think what's really important is what are companies doing? And for us, what are we as GE doing to operate and outperform in this environment? I'm just off the road, been out over the last 3 weeks with all of our businesses conducting our quarterly operating reviews. And frankly, I feel very good sitting here this morning about what we're doing, how we're controlling the controllable to make sure that we perform in this environment. As many of you know, we've been embarked over the last 3 years on a lean transformation of our company. And I'm so glad for a host of reasons that we've been doing that, and that we have stayed on that path, not the least of which is, in an environment like this, amidst great uncertainty. Operating in the way that we are, I think, is the best formula for us to perform. I'll give you 3 quick examples -- but from a delivery perspective, this is clearly challenge number one. Fortunately for us, it is not demand. We've got plenty of demand, we'll talk about that a little bit later, both in Aviation and in Healthcare in particular. We have to deliver, and we have to be better at that, making some progress in that regard. Price. Clearly an imperative for all companies out there. I think this is something that we've had to develop. It wasn't a well-exercised muscle in many aspects of our business, but we've been doing that over the last 12 months. And I think as the year plays out, we're going to see more progress in that regard. And productivity, cost out. Again, a constant, but not necessarily something you turn on a dime. And given the productivity orientation that we've taken to these businesses over the last few years, I think we're well positioned to drive this. And it's a combination, not only of what we've been doing from a lean perspective. When I say lean, think Toyota production system; but also from a decentralization perspective, really running the company more along vertical lines, along P&Ls as opposed to a horizontal approach, where we're looking for scale and the benefits of synergy. Let me talk about delivery for a moment. This clearly has been job one for us. We talk a lot about Healthcare, but all of our businesses are really wrestling with a host of challenges, both inside of our shops and with our suppliers, to satisfy customer demand right now. When you take a lean perspective, it really comes down to a few simple ideas, right? The first is daily management. How do we make sure every day counts in the factories? Secondly, pull, or flow. How do we make sure we're not batching and trying to get product out the door at the end of the quarter? But again, the spirit of making every day count, organizing our flows, not only within our own operations, but with our suppliers, so that we reduce waste and increase velocity. And finally, we're in the process of redefining our relationship with our suppliers. And that's something that goes hand-in-hand with a lot of the lean agenda. But what we're finding is our suppliers are really buying into this lean transformation just from a sheer coordination and signaling perspective. They get a lot less noise out of us today. That allows them to organize their own activities, give us more reliable flow. Again, something that's of critical importance in this environment. And as we go through not only this quarter but prepare for the back half of this year and go into next year, this is going to be critical given the backlog that we have in Healthcare, the tremendous opportunity that we see ahead of ourselves in Aviation. It's less a challenge in Energy Co, but nonetheless important. You can see on the right in Healthcare, something we watch, we call this our red flags. These are the line items where, if we don't replenish, we're going to be out inside of 10 days. The curve over time is peak. It's gradually fading. You might think, well, shouldn't it be tailing off more if you're going to step up in the second half in the way that you think? Remember, in the second half, we are going to be working against easier comps, but we'll take the stability inherent in this chart for now because it allows us to have fewer surprises and to be able to manage some of the uncertainties with greater command. We go to price. Again, an underdeveloped muscle, but an area where I think we are making progress. We would expect to see $500 million of price benefit this year. When you look at how we pursue price, there's not one approach given the breadth of GE. When you look at the revenues on the left side of this slide, and in fact, you can cut the pie right down the middle: Half equipment, half services. With equipment, we have a lot of product where you really can't calculate price because it tends to be one-off, tailored -- configured in a way that really doesn't allow for high-volume comparisons. But we do have plenty of flow business. Think Healthcare in particular. Onshore wind to a degree, where we can mark period-to-period, what we've been able to do with respect to price. On the services side, about 1/3 of that business is under long-term service agreements, the rest is really open market activity. And in our long-term service agreements, we have built-in escalators. It allow us to, in effect, index with inflation and other measures. There's been some opportunities to tune that up, and we've been doing that. But the rest of the aftermarket is, if you will, more traditional, where we've been able to take up list prices, reduce discounts, add surcharges, look at terms, all of the myriad of things that one does in an environment like this. So progress to be sure, a lot of it, frankly, modeled on what Scott Strazik and the team have done in the last several years in gas power. And remember, for us, because of the complexity of the business, we don't want to get wrapped around a price number when in fact it's ultimately about margin. So on new unit gas turbines, what the team has done is really make sure that we are hyper selective on the opportunities that we pursue, lock down on costs so that we don't pursue anything without clear line of sight on what our cost positions are. In our flow businesses, Healthcare, grid automation and renewables, we've been going through more traditional pricing activity. And again, like we have in Gas Power, making sure that with all of our service opportunities, we're pursuing price to the fullest extent possible without sacrificing good, appropriately margin -- appropriately priced volume in the aftermarket. We go to cost out. Roughly a $68 billion cost pool. The challenge here is to make sure that we are driving material cost out while driving labor productivity, and doing so amidst of these cross-currents. So a good bit of what we have done is to make sure that we are not only working closely with suppliers around should-cost activity. We've redoubled our efforts around value-added, value engineering, to make sure we're not just arm wrestling at the negotiating table, not a great posture for anybody in this environment, but really driving sustainable value creation hand-in-hand with the suppliers. And at the same time, driving a lot of our Kaizen activity on the shop floor to make sure that we are eliminating all forms of waste. There's a host of ways in which that presents itself in the P&L. But in terms of labor productivity, probably one of the most important and most direct. And as we go through a good bit of our spin prep. What this is allowing us to do is take yet another look at the corporate overheads for GE overall as we lay in 3 discrete overhead structures for the spincos, making sure that they don't take an additional dollar of cost they don't want and need as they prepare for their independent status. So a lot here that we're excited about. We've got a $2 billion cost-out, gross cost-out target for this year. And again, on the back of these operating reviews, I think we feel very good about the potential for us to deliver on that number this year. So if you step back from the delivery from the price and the cost activity, what you really see is this lean transformation in full flight. When you boil lean down to its basics, it really is about focusing on the customer, a maniacal pursuit of waste and the elimination of waste and an unrelenting prioritization. And these have been critical, I think, for each and every GE business over the last several years. What we're doing is making sure that we're driving day in, day out improvements in safety first, quality, delivery and cost and productivity. And the approach here is not to put together a to-do list, it really is a hands on, let's get it done, let's get it done today, let's get it done this week, approach, which I think is quickening the operating cadence in the business. As we do that, that also infuses the cultural transformation that's underway. And you see that in the white space there. We talk about humility, talk about transparency, focus. These are the leadership behaviors we want every GE leader to embody in their daily work. This is a multiyear effort. We won't be done by the time the spins occur. But as I'm with our leaders, as I'm out with businesses, this is really taking root in our businesses deeply. And I think it's going to change not only how we operate and how we perform, but the underlying culture which can drive those results over time and make them truly sustainable. We're in a different place today than we were a few years ago with respect to the balance sheet, and it really puts us on a far more offensive footing. And what you see here is how we think about capital allocation priorities. Clearly, first and foremost, we want to drive better organic growth, profitable growth, not just market share for its own sake. That impacts how we sell new product introductions, let alone how we continue to invest in technology longer term. A couple of pictures on the right capture some of those sales wins. We got our first HA gas turbine in Vietnam recently, very excited about that. The new Sierra 3-megawatt wind turbine is launching now here in North America, another important new product introduction for us in renewables. And our adaptive cycle XA100 engine back in March completed its second engine test. Key technical milestone there. So again, these are the 3 organic priorities that are front and center for each of our businesses. What we want to do is make sure that's not only on strategy, but couple that with smart M&A. And we've been able to do a few things, notably last year with BK Medical in Healthcare, to accelerate the implementation of our strategy, to further define our competitive advantage through smart capital allocation. But opportunities will present themselves with respect to the stock itself. And you saw the Board authorize back in March a $3 billion buyback. We've been in the market here of late. We think that's a good investment, a good return opportunity for the GE shareholder. So a lot going on here, both organically and inorganically, as we prepare for the future. Speaking of which, back in November, and Brendan, it's kind of hard to think back. It's been 7 months since we shared with everybody our intent to further the decentralization effort to set ourselves up on a path to Spin Healthcare, to Spin Energy Co, and to have the go-forward GE be our Aviation business. I think we've made a lot of progress over the last 7 months. We said Healthcare would go first early in '23. So we're almost at the halfway mark. It's kind of hard to believe that time has flown that quickly. But I think the customer response has been strong, the progress with the underlying rewiring and replumbing of the businesses to prepare them for their independent states has gone very much according to plan. And I think what we see is that the focus on alignment, the accountability, the opportunity to really be focused throughout the organization on performance in each of the verticals, we saw plenty of that over the last 3 years, but we've certainly seen that take a different level here over the last several months. And we're excited about the path that we're on here. Really no change to the timetable. Again, Healthcare early next year, with Energy to follow approximately a year after that. And then just to wrap up. Again, I think that this story can be simple if you let it. And it really comes down to 3 leadership businesses in important growth markets poised for the future; an operating template that is very much fit for today, but ready for tomorrow across each of the 3. And we stand ready to have 3 GE offspring here before too long. Proud of 130 years of GE heritage, lots of core strengths in terms of technology, the installed base, let alone the teams. But I think a future that we're equally excited about and pleased to have the opportunity to share some of that with you this morning. Brendan?

Outstanding. Thank you so much for the commentary. It's great to hear an update on the story. Durable franchises and lean discipline is -- it's simple, right? But there's been a lot of complexity between A and B.

You bet.

As you look back, it's been a year since we chatted last at the SDC. What have been the biggest surprises for you to the upside or downside in the GE story? And where do you have the greatest warnings?

Yes. Well, a lot has happened, right? I think we were really just on the cusp of having announced the GECAS transaction last spring, which really set all of this in motion. The announcement there in November, the opportunity to have everybody come down to Greenville to see a lot of the lean transformation in progress, let alone the [ macro scene ]. Brendan, I think first and foremost, this idea of accountability, given the prospect of the spins, it's probably been as expected, if not more so, right? It's one thing when you're inside of a company, particularly a company as large as ours, reporting to corporate on a regular basis. And we're involved. We're active. But I could see in the run-up to the investor meeting in March, where the CEOs and their teams were going to be on stage for the first time with the prospect of the spins. And it focuses the mind, I think, in all good ways. I'd say, secondly, from a lean perspective, I know some investors say, "Well, gosh, that sounds old school. Is that really important anymore?" From the day I joined the Board -- from the time before I joined the Board, I was just convinced that a lot of what we do, not only from a manufacturing perspective and from a service perspective, but just the approach to running the businesses, would be well served. And that has been tested, right, not only in the current environment, but with the prospect of the spins. And I think we've seen that stand the test of time. And if there's one other idea, I would just say, we have been reminded time and time again here of the importance of getting the team right. The differentiation in performance, in culture, when you get the leadership equation right, regardless of the size of the business, is significant. So a lot of what we were getting an update on evaluating, proving over the last 3 weeks is just where are the teams, right? Not with respect to the technical matters relevant to preparing for the spins, but how well prepared are they? How durable is their trajectory with what lies ahead? And again, we feel good about that.

That's excellent. So I'd love to pull on that thread just a little bit on the team and with culture specifically. So I mean, GE's workforce parallels a small city. I've been in lean operations before. It's a mindset. How do you -- I mean, it's more complicated than changing the top 50 people or moving a few dozen up the curve. How do you drive that through such a big organization so quickly?

Well, It's been 3.5 years. I don't know if that meets your definition of quickly.

Point taken.

I see progress. I see opportunity everywhere I go. So we're far from done. Brendan, I think it really comes down to being consistent, right? This is not something where we've hired a bunch of consultants to go into the middle of the organization and preach and bill us for having done so, right? This is really an approach, top-down, that is hands-on, be it in the operating reviews I was referring to. I'm headed off Sunday to Wales, spend a week actually on a Kaizen team myself. Now I won't add a lot of value in that environment, but I'll help set a tone relative to this being important, and I'll learn a lot about the business. It's what we did back in October at Lynn. And I think at every turn, making sure that people understand that this is not some sort of merit badge to earn, but it really is the way we're going to run the businesses. This is the way we're going to lead, helping people get up that experience curve. And at every opportunity, I can help coach somebody up, teach them. Or perhaps if they're not with us, right, take that into account as we think about the evolution of the organization. So it's really -- I wish there were silver bullets here, but it really is the cumulative effect, that game of interest we talk about, over time. And when you look at what we're being tested by right now, the team isn't flinching. Far from perfect. But this is an environment where supply chains are so rattled. It would be easy to pull up and say, "Let's not implement pull right now," right? "Let's do that when things are calmer." That's not the mindset. The mindset is this really works. This is better for us, forges a better relationship with our supplier, let's stay with it. So in that instance, I know the team is on its way. My role is really to make sure they get the support they need.

That's remarkable transformation. I'd love to talk briefly, you mentioned the macro, there's a lot of noise in the economy. It's hard for investors to look through that. How should we think about parsing out sort of the exogenous versus the controllable as we look over the last couple of quarters and probably the next few?

Right. Well, that's hard, right? Hard for investors. Even at times, I think, hard for us. And we really have tried to understand those crosscurrents. And that's a laundry list of things that are real, that we hit on earlier. Okay. That's our reality. Let's go. And as you saw, I think, on some of the slides, we want to make sure we don't lose sight of the fact that, as tough as it is, how many people saw orders up 13% in the first quarter, right? I mean, I think that's an enviable position. Speaks to the strength of the aviation recovery, speaks to what's happening in health care in particular. All the more, we saw services growth in all 4 businesses, right? So as we emerge from this pandemic period, I think it really is up to us to make sure we are actively controlling the controllable. So whether it's delivery, whether it's price/cost, some of these efforts, I think will present themselves in our performance as we ramp through the course of this year and go into '23. We can always spend time at quarter's end teasing out this or that, but I think we want to be careful not to create a lot of oxygen for undue analysis or excessive analysis, I should say, when what's most important for the GE team is to execute.

Okay. Macro again. Recession, we hear a lot of chatter about that, hopefully not coming. We think about you as sort of a long-term, long-cycle secular growth story. How do you think about the possibility of slowdown and the impact on the business?

Well, I don't think our crystal ball relative to the macro later this year, '23, '24, is necessarily any better than others. We're clearly going to see, with the Fed actions, different impacts in different businesses. However, when we look at that backlog that we referenced, right, 80% of which is in services; we look at what's happening in aviation and the absolute trough level that the industry is operating off of today; the tone, the tenor of the conversations around really modernizing health care infrastructure. And again, that's a global conversation. It's not something that we hear about in any one part of the world, public and private. That just sets us up, I think, well. And when you look at energy, there certainly will be some businesses that are not going to benefit from the energy transition as much as others. But between the growth that we're seeing in services, what we're seeing in grid automation. Clearly, offshore wind is poised for a decade-long run. Gas is a different -- I think a quite different role today in the energy transition. Onshore wind, a little bit of an air pocket here, but we think will be a good decade-long play. There's a lot that we're going to be able to do, again, within our control a little bit outside of the economic cycle. And we just need to make those realities come true.

Makes sense. Let's -- why don't we pivot and talk the businesses briefly and then touch on the spins and a bit of financials. So I guess, Healthcare, first spin, so we'll talk about it first. You've got an enviable portfolio of solutions under the GE umbrella. If you think about the workflows and the products that serve your customers, where do you see the greatest opportunity for this business to add value? It could be organically or inorganically.

Right, right. That's a really important way to look at the business, the workflow -- you say workflow, I smile. Traditionally, GE Healthcare, I think, has been viewed as a box business. Big box is expensive, understandable. But from the first time I met Pete Arduini, our CEO who started earlier this year. Pete, who actually started his career at GE, in Healthcare. Pete really thinks in terms of workflows. So whether we're talking about some of the areas where we're most excited, be it cardiology, oncology, neurology or even orthopedics, that view of really seeing life as the customer does, back to lean, right? I just think incredibly important with respect to how it impacts how we go to market, how we think about innovation and new product introductions, let alone M&A. So those are the areas where you'll see us focused. This is, I would say, still early innings for us, Brendan, relative to making that a reality. But we have new sales leadership, and I think virtually every region of the world today completely bought-in to that approach. You're going to see new product introductions more geared toward workflows over time. And I mentioned earlier with the prepared remarks, the BK Medical transaction we did last year. Theirs is very much lateral workflow orientation. So important capability for us to bring into our ultrasound franchise, but also for us -- opportunity for us to go to school on them to help accelerate our own workflow orientation. So a lot to come, but those are the 4 areas where you'll see us focus.

Excellent. So I guess looking to the quarter, at least last quarter. I mean, obviously, it's a bit choppy with component shortages and pressure on margins. Can you comment on how these things are trending quarter-to-date? And if they don't normalize near term and midterm, how would you think about running the business differently?

In Healthcare in particular?

Yes.

Yes. Well, certainly, it's been almost a year now where we've seen significant demand and effectively high single-digit levels of growth being held back because of these supply chain issues. That red flag chart that I showed earlier, in addition to a number of other things that we're doing, I think gives us optimism that we're going to be able to drive the sequential step-up through the course of the year. Just got news earlier that Shanghai has begun to reopen. I saw some pictures that were deeply gratifying, to see people in our factories. Particularly, our PDX facility that has been operating at far less than capacity, will be back I think at 100% as early as Monday of next week. So those are the sorts of things that I think we are doing. If things get worse, if they don't normalize, who knows what normal is anymore? Brendan, I think we just do what we've been doing, right? It will be choppy. We're not predicting calmer seas in the second half. But what we've been doing with respect to price, what we've been doing in terms of productivity and cost, the way that we are really looking at our flows to reduce cycle time within our facilities, lead times with our vendors. In some cases, working more closely with them, in some cases, frankly, resourcing and going either to a dual source or a different provider. Again, no one magical solution, but a host of different approaches to navigate through this period. If it continues to be like this, I think we're running the play that we should be running.

Excellent. And then flip side of margin, price. Back in Greenville, I think Pete made some comments around pricing pressures in the imaging business. Not unusual for medical devices, of course. Are you able to take price effectively given that long-standing industry dynamic? Is that starting to change?

It is starting to change. And I think we saw that in the first quarter, where our order price index, which is really the leading indicator of price, right? We got to get the order, we have to book it at a better price, was positive for the first time in some time. Again, we've reset the leadership teams around the world. They take this personally. They set the right tone. Most importantly, they're helping reinforce, teach, coach their sellers as to how to have difficult conversations. That helps. Now I think most investors want to hear that. They want to see it, right, in the P&L. Given the backlog, a lot of what we have been building up has better pricing in it. In addition, as we work through the rest of this year, some of the longer lead time items, like MORs, will go out. We'll see better pricing there. Some of the shorter-cycle businesses will present better pricing in the near term. But we would expect, given what we think we'll ship here in the second quarter, that we'll see our sales price index go positive. So progress. More to come, but certainly work to do.

Excellent. Why don't we pivot to Aviation, just watching the clock here. So next leg to recover here, and it feels like it's clearly a widebody aftermarket. What are you seeing in the market in terms of customer demand?

I think you're right, Brendan, widebody is coming. But narrowbody is still just starting, right? I mean, if you look, you've heard me say before, we -- I think the first thing I do when I wake up is look at the global departures number. We're north of 80% at '19 levels. Clearly, a narrowbody-led recovery. These are still early days, and we see this in terms of just the pressure -- the welcome pressure around our shop visits, parts and everything that we do in the aftermarket. So I think our macro view here is really unchanged insomuch as we think narrowbody departures are back early next year in line with '19 levels. Widebodies are coming. I think we're up -- 70% of where we were in '19, but it's probably going to be '24 until we see widebodies at the '19 levels. Clearly, the biggest variable there is going to be China relative to what happens, both in China relative to welcoming visitors and their own travel. But that, I think, is a framework very much in line with the IATA numbers and what we've said over the last couple of years. I know our good customer, and Bastian's going to be up here when we're finished, from Delta, talking about this from a -- from his perspective. But that's the house view today.

Excellent. And you mentioned shop visits, my ears sort of perked up. In Q1, I think you mentioned 18% versus an annual guide of 25% for your shop visit numbers. And supply chain was the culprit there again. Is there a supply chain challenge in the aftermarket for Aviation service?

For sure. But again, it's a myriad of issues inside of our 4 walls and with our suppliers. We own it all, right? So we never want supply chain to be code for a finger being pointed at a supplier. But again, material flow in our own shops, breaking bottlenecks, increasing yields, critical to driving better flow. We've had a couple of situations just over the last 90 days with -- because of COVID, even here in the U.S., where we had number of facilities that were running at less than full capacity because we have people in quarantine for a period of time. That dynamic -- those dynamics have been playing out with our suppliers as well. But I think an important part of what we're doing here is, again, resetting our relationship with our suppliers. I'm not sure we've always been anyone's best customer. Not that you aspire to that, but in times like these, really tight, clear links with the supply base is critical. It's critical relative to safety and quality, certainly delivery and productivity. So a lot of this lean work with the supply base is geared not toward just trying to get product out and clear backlog, while that's important. And both in the aftermarket and our airframer customers need more of what we do. But we want to make sure that, as we go through this work, we set ourselves up for whatever may come in the future to be more closely aligned, better linked with those suppliers regardless of the environment.

Excellent. And then, I guess, just looking at the aftermarket a little bit here. It's hard not to get excited about the order book for your next-generation engine sets. But they are more efficient. Do you anticipate, say, in the midterm, lower aftermarket revenues as airlines may favor the newer kit?

Brendan, I think we, again, are coming off such a trough that we know we're going to be taxed, both with the ramp from the utilization of the installed base. I mean, remember, with our CFM56 engines, roughly half or 10,000 of them haven't seen their first shop visit yet. So this is still early days in our view. We know that both of our major airframer customers have significant ramps in front of them. We appreciate the underwing positions we have on those platforms. We need to be ready for that as well. But I think the retirements, it proven to be far less than what some might have expected heretofore. And I think our view is that likely will be muted as we move forward just given the overall demand environment that we anticipate.

Excellent. It's great to have that line of sight. And one last question here just on innovation. I mean, it's quite a pipeline with is the RISE demonstration. We hear about hydrogen, hybrid engines. When you talk to your customers, airframers or airlines, how much conviction do you see there around the need for these new technologies?

Conviction around need, I think, could not be higher, airframers, airlines. But I think everyone is learning, everyone's experimenting. But in terms of conviction, I think it's high. And I would argue it's high the world over. I know you're going to have Scott Kirby from United on a little bit later. Part of our RISE technology development program, really the first stage, is with sustainable aviation fuels. So we were thrilled to be underwing for the first SAF test. They ran with us back in December. One engine, but nonetheless, we proved that we can do that. So we have a number of demo technologies -- or we have a number of technologies which we would intend to demo by mid-decade. You mentioned hydrogen. We've got hybrids. Certainly our unducted fan engine as well. So there are a host of technologies that we're investing in. I think if you talk to the airframers, you talk to airlines, you probably have different views as to how they see that portfolio of options, and those views evolve over time. That's the nature of technology, right? But an incredibly exciting period for the company and I think the industry. When we talk about the future of flight in our leadership role, probably going to be more interesting in this next turn than it has over the last several. But that's what GE Aviation is all about. So we're excited to see how those rides that play out over time.

Excellent. So turning to renewables, Unquestionably the most challenging story in the portfolio at the moment. We've got margin pressure, supply chain, the PTC in North America. So not an easy path. One of the themes that you and your team have highlighted over the last couple of quarters is around project selectivity. When we look at that, do you see similar discipline around project selectivity, around -- across your competitors? And is there a risk that project selectivity equals lower growth?

I think there's going to be a tremendous amount of growth in onshore, offshore and grid. I think we can afford to be selective. I think we have an absolute obligation to be selective and not just chase volumes so we can ring the bell. I think from the first time I met Scott, when he was down at Gas Power, he's understood what this looks like, not only on a PowerPoint slide, but how to implement at the bid level, right? And when you look at the, I think, the remarkable recovery in the margins, in our Gas Power business, a lot of it is tied towards being smarter about scope, selectivity, price, terms, risk, all of that, right? Selectivity is a big net. That's what we're doing in onshore wind. I think when you look at the high single-digit price uptick that we saw internationally in the first quarter, that's a function of that. We are going to see some volume that we're going to have to run off and frankly not replace because of commitments in the past, some of which are harder and more painful to fulfill today given the inflation. But I think this is really the only way to run a big-ticket technology business like ours. You mentioned competition. I think everybody in onshore wind, and I think offshore wind and even grid, recognize that the industry needs to be on better financial footing. So I don't think we're the only ones looking to be more selective, to be more mindful of where we have strengths, where we have a basis to operate versus not. So that doesn't necessarily make us distinctive, and I think it does suggest that, as things play out, as the industry evolves, and this is still a relatively immature market in some respects, that we can deliver the margin profile that we've talked about, both with respect to wind and importantly on the grid side of the business as well.

Excellent. And when we talk about margin, I mean, Q1 was tough for everyone basically. But in GE specifically, you sort of had a volume challenge with PTC ramp down in addition to the supply chain and the cost inflation that impacted everybody across the board. Can you parse that out for us, if you think about what portion of the slippage was volumetric versus cost inputs? It would be very useful as we think about the recovery trajectory.

Right, right. Well, keep in mind, Brendan, that as painful as the first quarter was, I think we have telegraphed that we'll probably see a second quarter that looks more or less like that. I think if you were to dimensionalize the drivers, you really have to start first with the volume pressures that we're seeing in onshore wind in North America, probably the best part of our renewable segment. Given the policy uncertainty in Washington, we've seen volumes down dramatically. We're not the only ones. But having led that market with over half -- about 50% market share in the last 3 years, we are bearing the brunt of that. So that's about again, about 2/3 of that year-on-year profit drop. And I'd say the other 1/3 really is the cost pressures that we are bearing that we have been unable to either pass along or offset. But I think as we go through the first half, second half step-up, right, there are a number of things within our control which have us thinking that we should see a significant improvement in our underlying operating profit. Still likely to lose money in renewables in the second half. I'm not proud of that, rest assured. But I think it will be a sign of progress that will set us up going into '23. And by the way, I think the tone out of Washington here of late has been incrementally encouraging around greater clarity with respect to the tax incentives around wind at some point this year. That will be good for us. Clearly, the first part of that would just be the order book beginning to be replenished and the down payments that come with that. Too early to call, but I think the news flow here in the last week, 10 days, has been mildly encouraging in that way.

Great. We have one quick audience question here. Strong progress towards the $3 billion target for offshore wind. And how are you thinking about cost pressures on breakeven, trajectory there?

Yes. Well, we were with the offshore wind team just last week in Paris. There's more activity underway in offshore wind than I think we would have anticipated early on. The early projects are going to be challenging for us, right? Breakeven is probably a good way to think about those projects largely because we are new. We're just beginning to come down the experience curve. And as a newcomer, I think we didn't necessarily get the best Ts and Cs 1 year or 2 ago. But I think we're really excited about the Haliade-X, what we're able to leverage from a technology perspective, not only from our global research center, but also our experience largely in onshore wind. That will be an important growth vector for us as we think about Energy Co and the sprint to 2030.

Excellent. And one quick question on Power, and then we'll turn to the spins briefly here. So the Ukraine-Russia conflict, obviously evolving very quickly. We get nonstop news about the European energy mix. As you see it now, is this -- is it a tailwind, a headwind, a question mark for GE's Power business?

Well, I hate to think, Brendan, about just such an unmitigated tragedy being good for our business. And as we've said before, we stand with the Ukrainian people. Their heroism really is breathtaking. . I think before the invasion, there were signs that this would be a year of pragmatism with respect to the energy transition. Go back to the European taxonomy and the way they framed both gas and nuclear's role in the energy transition. Even Larry Fink at BlackRock's letter relative to how they were thinking about things. I think those were encouraging signs, and then we have what we're dealing with now. So clearly, there's going to be a sprint forward around renewables. I think there's real recognition that there's a limit to how much we can do without a true modernization of the grid. It's one of the reasons we're so excited about what we do, both from a hardware and a software perspective there. And the role of gas, right, is a positive, constructive force for good, not only here in the U.S., but the world over. So I think that is a tremendous setup. And if there is more pragmatism with the dash, more uncertainty, I think that lends itself to the approach that we've taken thus far, right? Where customers say, "We need help. We don't need help here. We don't need help there. We need an all of GE Energy Co approach," all the more in this environment. So again, we never want to say, "Hey, what the Ukrainians are going through is good for us." But I do think we're going to have a -- I think we are having a different conversation around the energy transition, one that is very much on strategy for GE.

Understood. Financials and spins, 2 quick ones. So one, FY '22 is coming up pretty quickly. Does the margin risk in renewables, that's pretty choppy; or frankly, current market conditions, which are also pretty choppy, affect your thinking at all around timing for the spins? Or how you may do things over the next 1.5 years here?

No. No. I think when we laid this out, of course, we couldn't envision this environment. However, we stress-tested a number of scenarios, options, alternatives so that we were not necessarily planning for perfection. There were a host of reasons why we concluded a 2-step process would be advantageous. We thought Healthcare would likely to be ready. That is true as we see things today. But we wanted to make sure that we launched 3 industry leaders, 3 investment-grade companies ready to stand on their own 2 feet. So part of the logic in giving ourselves a little bit more time with the second spin with Energy Co was to make sure that we were working through the issues we touched on earlier. So we probably would be challenged to spin Energy Co today, but that was never the plan, right? So we've got time. And again, given what we've seen here just in the month of May, now June, what we're anticipating over the next 7 months, I think we're on that path.

Excellent. And then one last quick one on finances. We talked towards the lower end of the guide last quarter. Do you see any major, I guess, risks, upside or downside to that as we approach the end of Q2?

No change as we sit here today, Brendan. I think the risks, external, internal, really are all around how do we navigate through these supply chain issues? If they abate a bit and we're able to get more product out, that's a good thing. If COVID lockdowns make operating in the back half even more taxing in China, that could run against us.

Makes sense. And then, I guess, final messages. There's a lot of complexity here, but I do think it's a simple story. If there's 2 to 3 things that you want to leave investors with here today, what would they be?

Well, I'd just go back to that last slide, right? Industry leaders in markets that matter, a lean transformation that will bear fruit for years, and 3 outstanding companies ready to stand on their own bottoms.

Brilliant. Well, excellent. Thank you so much for the conversation. It's always a pleasure, Larry.

Thanks, Brendan. Thank you.