General Electric Co. (NYSE: GE) Q4 2020 earnings call dated Jan. 26, 2021
Presentation:
Operator
Good day, ladies and gentlemen, and welcome to the General Electric Fourth Quarter 2020 Earnings Conference Call. [Operator Instructions] My name is Brandon, and I’ll be your conference coordinator today. [Operator Instructions]
I would now like to turn the program over to your host for today’s conference, Steve Winoker, Vice President of Investor Communications. Please proceed.
Steve Winoker — Vice President, Investor Relations
Thanks, Brandon. Good morning, and welcome to GE’s fourth quarter 2020 earnings call. I’m joined by our Chairman and CEO, Larry Culp and CFO, Carolina Dybeck Happe.
Before we start, I’d like to remind you that the press release and presentation are available on our website. Note that some of the statements we’re making 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. Please note that we will hold an Investor Call on March 10 to provide more detail on our 2021 outlook.
With that, I’ll hand the call over to Larry.
H. Lawrence Culp — Chairman and Chief Executive Officer
Steve, thanks, and good morning everyone. It’s hard to think of a tougher year than 2020. However, our team performed and the fourth quarter marked a strong free cash flow finish to the year.
Starting with our results snapshot on Slide 2. Industrial free cash flow came in at $4.4 billion in the quarter, $0.5 billion higher than last year. This was largely driven by better working capital and improved Renewables and Power orders. For the year, we generated positive free cash flow of $600 million or $300 million excluding BioPharma in the first quarter. Despite the weakness in Aviation, Healthcare drove our performance, delivering $2.9 billion of free cash and Power and Renewables continued to improve.
Orders were down 3% organically in the quarter. While down, this was a considerable improvement from the second and third quarters. In three of our four segments, orders were in fact up. Notably, equipment orders at Renewables and Power were up double-digits. For the year, orders were down 17% with 95% of this pressure Aviation-related. Despite this, our backlog remains a strength at $387 billion with approximately 80% geared toward services where we have higher margins.
Industrial revenue was down 14% organically and 13% for the year. Services were down 22% this quarter driven by the Aviation aftermarket despite some moderation, outages and upgrades in power and power upgrades and renewables. While Services may fluctuate quarter-to-quarter, especially as we’ve seen during the pandemic, they create a multi-year backlog of profitable business and importantly keep us close to our customers, and we expect to grow in ’21. Industrial margin was 6.4% this quarter and 3.4% for the year. While this was an organic contraction on both measures, we saw sequential improvement through the year due to our more than $2 billion of cost actions.
Adjusted EPS was $0.08 for the quarter and $0.01 for the year, which includes an impact for the restructuring recast of $0.02 for the quarter and $0.05 for the year. Carolina will expand on this momentarily. In all, momentum is growing across our businesses. As 2020 progressed, we significantly improved GE’s profitability and cash performance despite a still difficult macro environment. We’re encouraged by the significant free cash flow growth this quarter.
We came into 2020 with a clear game plan at GE. We were expecting strong performance from Aviation and Healthcare, while executing our turnarounds at Power and Renewables. We all know how the story goes. The COVID-19 pandemic hit and it hit us hard, but our battle-tested team embraced the new realities and moved on. This is best evidenced by the meaningful progress on our priorities.
Looking at Slide 3; one, we strengthened our businesses. This started first with what matters most, protecting the safety of our employees and taking care of our customers and our communities. At the same time, we remain focused on what we can control. We continue to build our world-class team at all levels with new leaders joining our existing strong bench of GE talent. And these leaders are playing a critical role in GE’s operational and cultural transformation.
In support of our transformation and better results, we executed more than $3 billion of cash actions. This enabled strong free cash flow generation in the quarter, bringing us again into positive territory for the full year. Specifically at Gas Power, we delivered positive cash flow one year ahead of our commitments due to our cost measures and operational improvements. And we saw traction across our other businesses, for example, all three Power Portfolio businesses generated profit growth this quarter, the first time in two years.
Two, we continue to solidify our financial position. Despite the ongoing market uncertainty, our liquidity remained strong, bolstered by our free cash flow performance. We exited the quarter with $37 billion of cash. You’ll recall that in early 2020 we completed the sale of our BioPharma business for $20 billion. This cash enabled us to accelerate our balance sheet deleveraging efforts. And since the beginning of 2019, we’ve reduced external debt by $30 billion.
And three, we’re building our foundation for long-term profitable growth. This starts with GE’s purpose; rising to the challenge of building a world that works. We’re leading in some of the world’s most important markets; the energy transition, precision health and the future of flight. And we’re passionate about delivering for our customers, while tackling the world’s biggest problems.
We’re seeing this as we help customers decarbonize through leading technology across wind, gas power generation and modernizing the power grid with digital and automation solutions. And this really came to life in Healthcare this year where we were on the front lines responding to the exponential increases in demand in certain products due to COVID-19. And we’re keeping our sights on the long-term. Healthcare launched more than 40 new products, including the Mural Virtual Care Solution, which provides a complete view of patient status across a care area, hospital or system. And we announced that we acquired Prismatic Sensors, which has photon counting technology, a huge leap forward in the quality of limit, images that can be captured on a CT. So as we play more offense in 2021, our team is energized about making our purpose a reality every day.
Now lean is how we will do this across GE and the real unfinished business. In the last two years, we’ve laid the groundwork, establishing archives and promotion office and introducing lean fundamentals across the company. Now, we’re picking up the pace, scaling lean company-wide with an eye towards operational and financial impact through safety, quality, delivery, cost and cash improvements. In digital grid, for example, our team used problem solving and daily management to reduce quality defects by 25%. This helped drive savings that enabled the business to grow operating profit by 60% in 2020. As this team shows, you can apply lean in any part of the business, not just in manufacturing.
One of our key leadership behaviors is delivering with focus, which means ruthlessly prioritizing where we can add the greatest value. Two key opportunities for GE are aftermarket services and digital, often working in tandem to transform what we can do for our customers on a daily basis. For example, our renewables and digital teams are working together to develop AI-enhanced wind turbine inspections to reduce blade failures. In turn, earlier detection will help improve safety as well as reduce repair time and cost. These advances are possible due to our ongoing commitment to investing in innovation.
We also had some major product launches this year with the Haliade-X wind turbine in the GE9X engine receiving certifications. Both machines are leaders in their own rights, offering incredible power output and efficiency. So 2020 is certainly a year none of us will ever forget for its challenges, but even more so, for how the world rose to meet them. At GE, I’m proud of the way we persevered in the face of great uncertainty, and we’re setup well for the year ahead.
With that, Carolina will provide further details on our quarterly results.
Carolina Dybeck Happe — Senior Vice President and Chief Financial Officer
Thanks, Larry. Broadly speaking, I’m also pleased with how we’re progressing on our priorities. We’re becoming more operational, we’re deepening our focus on cash flow and we’re using lean and automation to improve speed, quality and scale, and you’ve started to see evidence of this in our margin and cash flow numbers. I’ll share some examples with you today.
Turning to Slide 4. Larry covered our consolidated results, so let me provide some additional color on our earnings performance. First, we made some notable reporting enhancements. This better align with how we operate our businesses and will help us drive improvements. They also further enhance transparency and disclosure quality. Of particular note, we now include restructuring expense expected for significant and higher cost programs in adjusted EPS and in our segment results. This will drive accountability in managing cost and benefit at the businesses. The restructuring recast was an impact of $0.02 in the quarter and $0.05 for the year.
Second, we are still managing through significant market volatility. Aviation continues to heavily impact our overall performance, pressuring our top-line and our Industrial profit, but we saw progress in our other businesses. This quarter, while overall Industrial margins was down 350 basis points, excluding Aviation, margin expanded 340 basis points, reflecting swift actions and strong executions on our cost programs. As planned in 2020, we reduced structural headcount by more than 20,000 or 11% and that’s ex-dispositions.
Third, looking at continuing to adjusted EPS. Much of this difference came from the steps we’ve taken to improve our financial position and operations. There were a couple of main drivers. This includes our Baker Hughes mark and $124 of restructuring expense tied to the significant high cost programs. I’d also point, debt tender costs, additional BioPharma-related tax benefits and the remaining $100 million to close out this matter. In all, as our actions took hold, we saw improving results to close this difficult year.
Moving to cash. We generated $4.4 billion of Industrial free cash flow this quarter, well above our expectations coming into the quarter. This is up $500 million year-over-year, but it’s also ex-BioPharma up $900 million. All businesses delivered positive cash flow, largely driven by better working capital management. Cash flow benefited from positive earnings. Healthcare earnings was strong again this quarter. And together with Power and Renewable, were enough to offset Aviation decline. You’ll see that there are puts and takes between earnings and other CFOA. As seen in prior quarters, non-cash items, such as the Baker Hughes mark-to-market impacted earnings, but not cash, and they were offset in other CFOA.
Consistent with how we run the business, we’ve strengthened our working capital definition, broadening it to include current contract assets and other current items, while our free cash flow definitions remain unchanged. This quarter, working capital was the biggest driver of our free cash flow, a source of cash at $3.4 billion. This was significantly better sequentially and year-over-year due to seasonal volume and continued operational and financial process improvements. While we’re seeing improvements across the board, inventory and payables were the net contributors to cash flow this quarter.
Looking at the dynamics, receivable, naturally pressured from the higher seasonal volume in fourth quarter. We also reduced short-term factoring by $1.2 billion this quarter, bringing the total factoring balance down to $6.8 billion. Partially offsetting this was strong collections, resulting in a further decline in past dues and DSOs. Renewables was a stand out this year, implementing a standard operating rhythm using lean to reduce its DSOs and its past dues by more than 25%.
On inventory, we released $1.6 billion across all businesses through higher deliveries driven by seasonality and more rigorous material management. For example, Healthcare’s margin is implementing a real pull system in production. So far, this has improved on-time delivery by roughly 15 points and increased inventory turns by half turn. Payables were also benefited as volume increased this quarter. Progress collections were a net $1 billion inflow. This was driven by cash collected from large orders closed in Renewables and strong milestone deliveries, partially offset by Aviation from power, contract assets and net $800 million of inflow and this was due to Aviation CSA collections, including quarterly flight hours, annual minimum contract requirements and other items.
We’re still carefully optimizing our investments to drive returns aligned with our long-term objectives. We held capex flat sequentially. In fourth quarter, this represents a reduction of more than 50% year-over-year. And for the year, this is down 31%. But importantly, we continue to invest in high return and strategically important projects.
For the year, Industrial free cash flow was $600 million. All businesses, except Aviation, improved cash flows and ended the year stronger than they began. Total Power generated positive free cash flow, including Gas Power as we made faster progress on our fixed cost reductions and working capital improvements despite the negative cash flows of Power Portfolio.
Healthcare delivered an impressive free cash flow $2.9 billion, while overcoming $1 billion headwind from the foregone cash flows of BioPharma. This was driven by higher earnings, primarily from the pandemic-related demand, cost actions and better working capital. Free cash flow at Renewables was negative $600 million, but the $300 million improvement year-over-year despite the impact of the businesses cycle. The focus on inventory management is paying off, and we had strong progress from orders and milestone execution. Aviation free cash flow turned positive this quarter and was nearly breakeven for the year, enabled by our significant cash actions.
Stepping back, our trajectory to sustainable cash flow growth rests largely on self-help. I’m confident we’re focused on the right areas; operational cash drivers that improve working capital, increasing our frequency of our operating rhythm and more linear cash flow generation throughout the quarters and the year. For example, all leaders have action plans to run their businesses leaner with lower inventory levels. In aggregate, our focus and actions to improve working capital are starting to pay off.
Moving to the segment results, which I’ll speak to on an organic basis. First on Aviation. GE and CFM departures were down approximately 48% this quarter versus our January ’20 baseline. Due to the resurgence of COVID-19 cases and further travel restrictions, the commercial aftermarket, which is critical to our recovery, showed some sequential improvement. Orders were down 40% year-on-year, but up more than 50% sequentially. Commercial Services was down more than 50% year-over-year with Commercial Engines down 21%.
It’s important to recall that the fourth quarter of ’19 included $1.9 billion order from the aeroderivative joint venture formation. This was just under half of the total orders declined in dollar terms. Aviation backlog stands at $260 billion, down 5% year-over-year, yet flat sequentially. The largest driver was Commercial Engines as unit shipments and cancellations of this orders. Cancellations were about 400 units, primarily LEAP-1B this quarter. Significant, but for context, our ending LEAP backlog still stands at more than 9,600 engines.
Revenue decline continue to moderate, down 34% this quarter, while revenue was up nearly 20% sequentially. Commercial Engine revenue was down 47% as we shipped 309 fewer engines year-over-year Commercial Services revenue was down nearly 50%. This was driven by lower spare part sales and shop visits. Charges for long-term service agreements were approximately $150 million this quarter, roughly a third is COVID-related.
While customer demand remained strong in military, revenue was flat, falling short of our expectations. This was due to continued supply chain challenges slowing shipments. Segment margin, 9.6%. Margin expanded sequentially, driven by the cost actions and improved volume in commercial markets despite more than $100 million of continued higher cost due to lower production rates. Decremental margins this quarter were 48%, up sequentially. This was due to continued volume pressure and a tough margin comp of 23% from the fourth quarter in ’19. So for the year, Aviation margin of 5.6% was supported by significant counter measures. We realized savings of more than $1 billion of cost and $2 billion of cash actions. This work continues in ’21.
Moving to Healthcare. The team delivered another strong quarter. The Healthcare Systems’ market remained dynamic with elevated demand in COVID-19-related equipment, offset by softer demand for non-pandemic products. Regionally, public healthcare markets such as Europe and China, have been stronger than private market, particularly U.S., India and Latin America. For the second consecutive quarter, global procedure volumes were relatively stable with some regional variability as care providers postpone elective procedures due to COVID-19 spike. With that backdrop, Healthcare orders continue to improve, up 1%. In Healthcare Systems, orders grew 1%. Europe was up low-double-digits and China up low-single-digits. Services saw consistent growth, up low-double-digit as we continue to provide critical support to our customers.
In PDx, demand continues to recover to pre-pandemic levels and orders were down 1%, but up slightly sequentially. Healthcare revenue was up 6%. Healthcare Systems was up 7%. LCS had solid execution, delivering a record number of ventilators. Non-pandemic-related volumes were also positive as we converted imaging backlog and ultrasound orders this quarter.
From a regional perspective, we saw strong growth in Europe and China. This year, China revenue was more than $2 billion and up 11% in the quarter alone. U.S. revenue was more than $6.5 billion, up 2% for the year, including the U.S. government ventilator orders. PDx revenue slightly down 1%. The segment margin was up 310 basis points this quarter and 190 basis points for the year. While we continue to invest in new products, the team reduced structural costs. Headcount was down roughly 1,200 this quarter and the business maintained tighter control over discretionary costs. For the year, revenue was up 4% with Healthcare Systems up 5% and the margin was 17%. Our team delivered operational improvement and have had room for more with an eye toward continued margin expansion.
Turning to Power, our team continued to make operational progress, particularly in cash generation. Starting with the market. Despite global electricity demand and gas-based power generation declining this quarter, GE gas turbine utilization, and therefore, our CSA billings were resilient, increasing mid-single-digits, driven by our technology and commercial positioning in higher growth gas-favored regions.
As anticipated, we saw significant orders improvement. Gas Power equipment orders more than tripled with HA wins in Asia and securing 45 to 50 heavy-duty gas turbine shipments in 2021. Service orders grew 7% with double-digit growth in transactional and low-single-digit growth in CSA. While upgrade decline moderated from earlier in 2020, down single-digits. For the year, Service orders were down 3%. Power Portfolio orders were down 27%, largely driven by steam equipment. As we exit new build coal, this trend of limited steam equipment activity has continued. And as we execute backlog and rightsize the business, we expect this to flow through the financials.
We ended with slightly higher backlog as growth in Gas Power more than offsets declines in Power Portfolio. Gas Power backlog of $66 billion grew roughly $700 million sequentially, driven by strong equipment and transactional services book-to-bill. Revenue was down slightly this quarter. In Gas Power, revenue was down 3%, largely driven by Services down 10%. We saw lower discretionary spend on upgrades and narrower scope of outages. For the year, we executed about 90% of our pre-COVID outage plan. Offsetting this was equipment revenue, up double-digits. We shipped 28 gas turbines this quarter, up seven units year-over-year for a total of 51 heavy-duty shipments in 2020, and we commissioned 4 gigawatts of power to the grid, including six HA units.
In Power Portfolio, revenue was up 5%, primarily driven by steam equipment project execution. Our Power Portfolio team performed about 90% of their pre-COVID plan. Segment margin of 6% was up 40 basis points. A double-digit reduction in Gas Power fixed costs was partially offset by negative revenue mix between equipment and services and some one-time non-cash charges, including for specific customer credit event.
In Power Portfolio, as Larry mentioned, all three businesses generated profit. Power conversion was a particular standout. Better execution led to margin expansion of 10 points year-over-year. For the year, Power revenues were down 5%, but the team held margins at 1.5%. We offset pressure from lower services volume and one-time non-cash charges, such as an underperforming joint venture for global aeroderivative packaging by reducing headcount by roughly 3,300 and decreasing Power fixed costs.
Turning to Renewable. Our progress continues. This year, onshore wind delivered record volumes despite the pandemic. Offshore wind received full certification for both its 12 and 13 megawatts Haliade-X. In grid and hydro, our turnaround showed improved results. Starting with the market. Onshore wind growth was dissent by international demand. Offshore wind continued to be supported by solid secular growth trends. And we’ve built a robust Haliade-X pipeline with total commitments of 5.7 gigawatts.
Orders were up 32% year-over-year, representing the first quarter of growth since the third quarter in ’19. This was driven by onshore wind with large equipment orders in North America and offshore wind with its first Haliade-X order of 95 units from the Dogger Bank Wind Farm in the U.K. This double-digit order growth brings our backlog to a record high of $30 billion, and importantly, at better margins. We remain focused on underwriting discipline and better project selectivity.
Revenue was down 7%, driven by onshore wind, specifically, new units and re-power upgrades were down 27% as our deliveries were more heavily weighted in the prior quarter due to the PTC dynamics. This was partially offset by growth in offshore wind and hybrids. Segment margin was slightly negative this quarter. Though up 290 basis points year-over-year, it was driven by cost productivity, better pricing in onshore wind North America and improved project execution. At grid, profit while negative, improved significantly, driven by our restructuring actions and better project execution. For Renewables, revenue was up for the year. And while this segment margin improved, it was still negative.
Moving to GE Capital on Slide 7. We ended the year with $103 billion of assets excluding liquidity. Continuing operations generated an adjusted net loss of $24 million this quarter. This was down year-over-year, primarily driven by lower gains at GECAS and EFS and higher taxes. Partially offsetting were lower the EFS impairments and positive marks on the insurance investment portfolio. At GECAS, our team continued to work customer-by-customer through restructuring, and in some cases, repossessions. At year end, the outstanding deferred balance was approximately $400 million. This was down slightly sequentially, both as a function of limited new deferrals as well as collections.
Importantly, we’ve collected around 84% of what we’ve invested to date. And out of the fleet of more than 900 aircraft, we ended the year with 27 aircraft on ground. This quarter, GECAS generated a profit of $120 million. That’s down $94 million year-over-year, driven primarily by the disposition of the PK Air in 2019 and market conditions. For the year, GECAS generated earnings of $50 million, excluding the second quarter goodwill impairment. Equipment lease impairments in the year totaled $542 million and $45 million in the quarter. Going forward, we’ll continue to monitor credit risk as further credit deterioration could result in additional airline failures over and above those that we have considered in our reviews.
Turning to Insurance. The business generated net income of $112 million this quarter. This was largely driven by increases in the unrealized gains in the investment securities portfolio and in mark-to-market adjustments and realized gains. As it relates to the pandemic and adjusting for what we believe is timing-related, in our LTC block, we continued to see reductions in nuclear and higher policy terminations. In our run-off life business, we saw — we still saw higher claims due to higher mortality. In our structured settlement block, we also saw higher mortality resulting in lower claims. Insurance will complete its annual statutory cash flow test in the first quarter of ’21.
As expected, GE provided a capital contribution to GE Capital of $2 billion in line with the required annual insurance statutory funding for 2020. As we said in the third quarter, we expect an additional contribution from GE from GE Capital in ’21 to meet its existing insurance statutory funding requirements of approximately $2 billion. In light of the uncertain environment, further 2021 contributions depend on GE Capital’s performance, including GECAS operations and the insurance safety results.
Shifting to corporate, our focus on decentralization continues. We are driving more accountability to the segments and continue to resize the core in favor of the business units. This quarter, adjusted corporate costs were $443 million, down 23% year-over-year. Functional costs and operations improved as we saw further reduced headcount, which was down 13% for the year. GE Digital saw significant traction on profit and cash flow as the business improved operations and optimized its cost structure.
Moving to Slide 8. We continue to improve our financial position despite the uncertain external environment. We ended the year with about $37 billion of total cash, more than $23 billion at GE and $13 billion at GE Capital. We also maintained $20 billion of credit lines. As for a series of actions this year, we reduced near-term liquidity needs through 2024 by $10.5 billion. We also continued to enhance our cash management operations, targeting more linear cash flow, lower factoring and less restricted cash. As a result, we reduced intra-quarter borrowings by $3.6 billion in 2020 or approximately 75% less year-over-year.
Expanding on cash flow linearity. One focus area for our businesses has been improving the end-to-end cycle of order fulfillment, billing and collections. In our Healthcare System Equipment business, for example, standard work is helping us level load the number of deliveries from the third month in the quarter to earlier in the quarter, smoothing out deliveries and collections. This is also reducing inventory and improving factory productivity. These types of operational improvements have reduced our Industrial cash needs to below $13 billion on a go-forward basis. And this creates greater capacity to delever the company. However, we will continue to hold elevated cash levels through this period of uncertainty.
Turning to debt reduction. We made strong progress in 2020, reducing external debt by $16 billion. And our Industrial net debt ended at $32 billion, down $16 billion in ’20 and down $23 billion from ’19. We also continued to derisk and actively manage our pension. In 2020, we decreased our pension deficit by $2.3 billion, the combination of strong asset returns at 17.6% and recent actions, such as the $2.5 billion pension pre-funding, more than offset the impact of low interest rates. Based on our current assumptions, we won’t need to make contributions through 2023 to the GE pension plan.
In terms of leverage level, Industrial ended with a 5.9 times net debt to EBITDA ratio due to lower EBITDA, reflecting pandemic-related pressure. We remain committed to achieving our Industrial leverage target of 2.5 times net debt to EBITDA over time. At GE Capital, we ended 2020 with a debt to equity ratio of 3.4. And we expect to remain below our 4 times debt to equity target.
In closing, our teams made meaningful progress this year. I am encouraged by the results we’re seeing from the many, many changes underway. We’ll continue to build on this momentum in 2021.
Now Larry, back to you.
H. Lawrence Culp — Chairman and Chief Executive Officer
Carolina, thank you. Turning the page to 2021. We’re planning to provide a full outlook for the company, including detailed segment information during our March Investor Call. But today, we’ll share an overview for the total company in 2021.
Moving to Slide 9. We’re expecting organic growth in the low-single-digit range for Industrial revenue. Organic expansion of 250 plus basis points for Industrial operating margin. $0.15 to $0.25 for adjusted EPS and a range of $2.5 billion to $4.5 billion for Industrial free cash flow. Of course, there are a number of key assumptions underpinning our plan for the year. First is the lost cash and earnings from dispositions, largely BioPharma, which again generated nearly $300 million in cash and $400 million in profit in the first quarter of ’20. And the continued reduction of Baker Hughes dividends, which represented more than $250 million of cash flow in 2020.
Second, on Aviation, where the impact of COVID has been most acutely felt and our level of uncertainty is still the greatest. Starting with the market, our plan assumes to purchase remained close to fourth quarter levels in the first quarter, and we begin to see the commercial aviation market recover in the second half. That said, we fully acknowledge the pace of the recovery remains dependent on containing the spread of the virus, effective inoculation programs and government’s collaboration to encourage travel.
At GE Aviation, we continue to expect the engine aftermarket recovery to lag departure trends across regions and fleets, particularly around quarantine requirements. And given that we generate a significant portion of our cash. in Commercial Services, the recovery of the aftermarket remains critical. So our full year plan assumes Aviation revenue as flat to up year-over-year. And as a reminder, since the full effect of the virus was not felt until late in the first quarter of last year, we will be lapping our tough comp.
Looking across our other segments. In Power, we anticipate continued progress at Gas Power with some offset in Power Portfolio as we exit new build coal. Overall, we expect equipment revenue will be down, driven by our narrower scope with less turned key volume. We’re also planning for growth in our higher margin Services revenue. In Renewables, we’re focused on improving operational execution and driving structural cost out. This will help us expand margins and improve cash. In Healthcare, we expect continued strength in Healthcare Systems as our new products and commercial average drive growth and PDx to recover. While we expect cash conversion remains solid, it will be lower than 2020. And at Capital, we expect earnings to be better.
At each business, we’re further accelerating cash performance and cost management with restructuring remaining elevated. So in aggregate, we have a positive trajectory going into 2021 despite areas of volatility and the continued challenges in Aviation. We’re focused on delivering on our commitments. And I’m confident that our continued efforts will build a stronger and more focused GE.
Turning to Slide 10. As we all know, 2020 was a year like none other. I’m truly proud of the GE team and their remarkable resilience. I hope you can see that in the face of great uncertainty, we continue to strengthen our businesses and deliver for our customers. And as we move through the second half, our businesses has had a strong free cash flow finish to what was a challenging year.
Momentum is growing across our businesses. We’ve continued to evolve our culture by embracing lean, while preserving the strength that have defined GE throughout its history. And I’m excited about the opportunities that lie ahead. How we will continue to lead the energy transition, help our customers deliver precision health and define the future of flight. As our multi-year transformation accelerates, we’ll unlock upside potential with better cash generation profit and growth. And ultimately, we expect that our industrial businesses over time should generate high-single-digit free cash flow margins, while rising to the challenge of building a world that works.
With that, Steve, let’s go to questions.
Steve Winoker — Vice President, Investor Relations
Before we open the line, I’d ask everyone in the queue to consider your fellow analysts again and ask one question so we can get to as many people as possible. Brandon, can you please open the line.
We are still processing the Q&A portion of the conference call. We will be updating it as soon as we analyze and process the con call. Stay tuned here for more updates.
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