What happened

Coming into General Electric's (GE 1.91%) fourth-quarter earnings report, investors were focused on free cash flow. GE delivered a number that was much better than expected, helping shares to surge 11% higher at the open on Tuesday.

So what

General Electric reported fourth-quarter adjusted earnings of $0.08 per share on revenue of $21.9 billion, falling a penny short of expectations on earnings but producing slightly better-than-expected revenue. But the real story was free cash flow. GE generated $4.4 billion in free cash flow from its industrials businesses in the quarter, nearly $2 billion more than what the company had forecast.

Photo of a GE9X engine mounted on a plane in flight.

A GE9X engine on a plane. Image source: General Electric.

Strong healthcare sales generated a lot of that cash, but the upside was driven by a surprisingly robust renewables and power order book. GE also said it expects to generate between $2.5 billion and $4.5 billion in industrial free cash flow in 2021, an indication that it believes the momentum generated in the current quarter will carry over into the new year.

General Electric has been a chronic underperformer over much of the last decade, but the company is attempting a turnaround under CEO Larry Culp. GE has sold a number of businesses to pay down its debt, but needs to start posting results to make investors believe a recovery is taking hold.

In a statement, Culp said, "As 2020 progressed, we significantly improved GE's profitability and cash performance despite a still-difficult macro environment."

Now what

If there was a disappointment in the release, it was that GE does not expect its aviation unit to recover until the second half of 2021. Heading into 2020 aviation was expected to be a major driver of GE's turnaround story, but the COVID-19 pandemic and its impact on airlines has caused that business to sputter.

I wouldn't be surprised if that forecast proves to be conservative. GE is far from its heyday but quarter by quarter the company is making its case that its turnaround has taken hold and is sustainable. There is still work to be done, but GE shareholders are understandably pleased with the progress.