Release Date: October 22, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- GE Aerospace (GE, Financial) reported a 28% increase in orders, driven by strong demand across its segments.
- Revenue grew by 6% due to growth in services and equipment, with operating profit up 14% and adjusted EPS up 25%.
- Free cash flow was $1.8 billion, with a conversion rate of over 140%, indicating strong cash generation.
- The company raised its full-year guidance based on strong year-to-date performance and fourth-quarter expectations.
- GE Aerospace (GE) is making significant progress in expanding its aftermarket capacity and improving LEAP engine durability, which is expected to enhance time on wing by 2.5 times.
Negative Points
- Despite an increase in orders, profit in the Defense & Propulsion Technologies segment declined due to lower engine deliveries year over year.
- Supply chain constraints impacted shipments, with total engine deliveries down 4%, including a 6% decrease in LEAP engine deliveries.
- The company faces ongoing material availability challenges, leading to increased inventory levels.
- There is pressure on margins due to higher inflation and increased investments, particularly in the Defense & Propulsion Technologies segment.
- The delay in Boeing's 777X program presents operational and financial challenges for GE Aerospace (GE), impacting future engine deliveries and profitability.
Q & A Highlights
Q: How should we think about the profit growth for 2025 given the updated 2024 EBIT guidance?
A: Larry Culp, CEO, mentioned that they are working through the updated 2025 outlook and will have a more defined look at it by the end of the year. Rahul Ghai, CFO, added that commercial services are expected to grow due to a significant backlog and price increases. Equipment growth is slower in 2024, so some volume will move to 2025. Defense programs have strong backlogs, and corporate cost reductions are ongoing. Overall, they expect continued strong earnings and free cash flow outlook for 2025.
Q: What are the expectations for LEAP output in 2025 considering supply chain constraints and the Boeing strike?
A: Larry Culp, CEO, stated that they are working closely with Airbus and Boeing to meet demand. They are encouraged by the progress in the third quarter, with an 18% increase in output from key suppliers. The new HPT blade is expected to improve field performance and manufacturing ease, aiding in 2025 output. The focus is on servicing the backlog and increasing output.
Q: What are the implications of Boeing's 777X program delay for GE Aerospace?
A: Larry Culp, CEO, noted that operationally, there is no change for GE Aerospace. They continue to test the engine and prepare for production ramp-up. Rahul Ghai, CFO, mentioned that they have already started delivering engines to Boeing and are working on the 2025 demand profile. The program is expected to ramp over the decade, with cost reductions planned to make it profitable by 2030.
Q: Can you comment on customer concessions or penalties due to delivery delays?
A: Rahul Ghai, CFO, stated that while they have typical contracts with customers, any necessary accruals are accounted for in the guidance. However, these penalties have not been material in 2024. They are focused on improving deliveries and supporting customers.
Q: How do you view the outlook for CFM shop visits and widebody engines over the next few years?
A: Rahul Ghai, CFO, explained that CFM shop visits are expected to peak in 2025 and remain high until 2027 before declining. GE90 engines are entering second shop visits, which will drive revenue growth. GEnx shop visits are expected to be flat due to improved time on wing, which is beneficial for profitability.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
