Release Date: July 24, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- GE Vernova Inc (GEV, Financial) reported strong adjusted EBITDA margin expansion across all three segments.
- Substantial improvement in free cash flow, with over $1 billion improvement year-over-year.
- Power segment saw a 30% increase in orders, driven by strength in equipment orders.
- Electrification segment experienced a backlog growth of over 25% since the start of the year.
- GE Vernova Inc (GEV) raised its 2024 guidance for revenue, adjusted EBITDA margin, and free cash flow.
Negative Points
- Wind segment remains challenging, with cautious outlook on the timing of an inflection in Onshore orders.
- Recent turbine blade event at Vineyard Wind project, causing operational pause and potential delays.
- Safety incidents reported, including fatalities in Malaysia and Turkey, highlighting ongoing safety challenges.
- Orders in Wind segment declined 44% year-over-year due to tough comparisons with the previous year.
- Potential risk of collections moving from 2024 into 2025 due to operational pauses in Offshore Wind projects.
Q & A Highlights
Q: Can you provide a timeline for the Vineyard Wind project review and its impact on the Dogger Bank project in Europe?
A: Scott Strazik, CEO: It's been 11 days since the event, and we have no indications of an engineering design flaw. We identified a manufacturing deviation in one of our factories. We will reinspect all blades made for Offshore wind. We won't discuss the timeline today but are confident in our process. There is a risk of some collections moving from '24 into '25, which is embedded in our financial guidance. We continue to install and commission wind turbines at Dogger Bank and are in close contact with SSE.
Q: At what point does Wind have to pick up before 2025 becomes more difficult, and are you still planning on high single-digit margins in Onshore for the second half of '24?
A: Scott Strazik, CEO: We are consistent with our financial framing of approaching profitability in '24 and high single-digit Onshore wind margins in '24, with the segment turning profitable in '25. '24 and '25 are more difficult years for Wind, but we remain confident. Orders pipeline conversion into orders is tough to call, but we see potential for revenue inflection in '26.
Q: What is the margin profile for the backlog in Power and Electrification?
A: Ken Parks, CFO: Wind's margin backlog has grown over the last 12-18 months and is staying at those levels. In Power and Electrification, pricing dynamics have continued to get stronger versus the end of 2023. Electrification equipment margins in backlog expanded 5 full points by the end of 2023 and continue to grow.
Q: How much of the Gas Power equipment orders growth is market expansion versus market share gains?
A: Scott Strazik, CEO: The first half of the year has been encouraging with demand for Gas. We expect the second half to have more orders than the first half. This is a general trend of increased demand for reliable power, leading to more gas investments.
Q: How should we think about capacity constraints at Greenville and the pricing of gas turbines going forward?
A: Scott Strazik, CEO: We have clear capacity to grow in Greenville, but we need to work with our supply base for more parts. We see a healthier pricing environment for Gas on orders booked in '24 into '25, converting into revenue approximately three years later. This will be margin accretive over the medium to long term.
Q: Can you elaborate on the grid and grid infrastructure business and its global outlook?
A: Scott Strazik, CEO: Historically, this has been a more European-centric business, but North America orders doubled in Q2. We are leaning into coordinated activities with strong customer relationships, especially in the US. Europe is investing heavily in grid growth for resiliency and energy independence, and we see optimism in the US market as well.
Q: What drove the reduction in product warranty liabilities from $1.4 billion to $1.2 billion?
A: Ken Parks, CFO: The reduction is due to the disposition of a portion of the Steam business sold to EDF. There are no other significant changes in warranty accruals or trends.
Q: What is driving the increased margin guidance for the Electrification segment?
A: Scott Strazik, CEO: The first half delivered mid-single-digit margins, and we now expect high single-digit margins for the full year. This is due to better execution and confidence in ramping up growth. Over 50% of the backlog doesn't start to convert to revenue until 2026, so we see continued margin improvement.
Q: What is the impact of lean processes on Gas Power margins and working capital?
A: Scott Strazik, CEO: Lean processes have eliminated rework and freed up capacity in Greenville. We are investing in machinery and supply chain to support growth. This will lead to better margins and optimized working capital, improving free cash flow.
Q: Can you update us on the pricing and margin profile of new orders in Electrification?
A: Ken Parks, CFO: Electrification is executing well on contracts, often landing at better margins than contracted. Smaller components booked in early 2024 will flow into better margins in the second half. The pricing environment continues to improve, supporting higher margins.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
