Q1 2024 Earnings Summary
- GE increased its full-year operating profit guidance to a range of $6.2 billion to $6.6 billion, up $150 million at the midpoint, reflecting mid-teens profit growth and more than 30% EPS growth.
- GE Aerospace doubled its free cash flow year-over-year, driven by higher earnings and working capital improvements, and expects free cash flow of more than $5 billion for the full year, with conversion well above 100% of net income.
- GE Aerospace's Commercial Engines & Services margins expanded, driven by favorable pricing and customer mix, leading to confidence in raising full-year profit guidance by about $100 million for CES.
- Lowered LEAP engine delivery growth guidance to 10%-15% from 20%-25%, potentially indicating supply chain constraints or demand issues affecting production capacity.
- High inventory levels due to material availability challenges, leading to increased work-in-progress and trapped inventory, which may hinder GE's ability to reduce inventory as planned and impact cash flow.
- Expected margin pressure in the second half of the year, as equipment growth ramps up, including GE9X shipments, and services mix shifts towards shop visits, resulting in lower year-over-year profit growth compared to the first half.
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LEAP Delivery Guidance
Q: Why was LEAP delivery guidance reduced?
A: GE reduced its LEAP engine delivery growth guidance from 20%–25% to 10%–15%, primarily due to alignment with customer needs, including Boeing's adjusted schedules. The company emphasizes a focus on safety and quality as it ramps up production in coordination with its customers. -
Margin Outlook
Q: How will lower LEAP volume affect margins?
A: With the pushout of LEAP volume, the anticipated 2-point margin headwind from LEAP OE ramp and increased R&D is now marginally lower. This adjustment, along with a strong first quarter, allows GE to raise its full-year profit guidance by $150 million to a range of $6.2 billion to $6.6 billion, reflecting mid-teens profit growth and more than 30% EPS growth. -
Orders Growth
Q: Is orders growth driven by volume or pricing?
A: The 34% increase in orders is primarily driven by volume growth, with pricing improvements also contributing. Commercial Engines & Services orders rose by 78%, and Defense Propulsion & Technologies orders increased by 72%, mainly due to base volume growth. -
Free Cash Flow Guidance
Q: Is there upside to the free cash flow guidance?
A: GE Aerospace doubled its free cash flow year-over-year in the first quarter, driven by earnings growth and working capital improvements. Given the strong start and increased operating profit guidance, the company anticipates free cash flow to be well above $5 billion for the year, with a conversion rate greater than 100%. -
Shop Visit Growth
Q: Are there challenges to achieving shop visit growth guidance?
A: Despite first-quarter shop visit growth of 3%, GE is confident in meeting its full-year guidance of low to mid-teens growth. Supply chain constraints impacted the first quarter, but improvements in material flow and operational focus are expected to drive increased shop visits in the remainder of the year. -
CFM Shop Visit Peak
Q: Will LEAP ramp delays impact CFM shop visit peak?
A: Delays in ramping up LEAP production may push the peak of CFM56 shop visits beyond 2025. Airlines are utilizing existing fleets more due to delivery constraints, leading to increased aftermarket demand and potentially higher shop visits in future years. -
LEAP Spare Engines
Q: How will lower LEAP production affect spare engines and suppliers?
A: GE expects the LEAP spare engine ratio to continue declining gradually over the next few years, with the full-year ratio down compared to 2023. Despite lower LEAP volumes, GE is preparing suppliers for long-term demand and is not significantly slowing down production ramp efforts. -
RISE Program
Q: Could RISE make GE the sole provider for next-gen narrow-bodies?
A: GE is advancing the RISE program's technologies and closely collaborating with airframers to achieve a 20% improvement in fuel consumption. While market dynamics are uncertain, GE intends to lead with innovation and be at the forefront of next-generation narrow-body engines. -
Contracts Transition
Q: Will LEAP engines shift from CSAs to T&M contracts?
A: GE anticipates a gradual shift from Contractual Service Agreements (CSAs) to Time & Material (T&M) contracts for LEAP engines over the decade. By 2030, GE expects to service 60% of LEAP shop visits in-house, focusing on increasing the T&M population to support cash flow conversion goals. -
Freight Market Impact
Q: How is freight demand affecting the CES business?
A: Increased air cargo demand, partly influenced by activity in the Middle East, has led GE to improve its freight outlook from a mid-single-digit decline to positive low single-digit growth. This benefits GE's wide-body engine exposure, with a more significant financial impact expected in 2025. -
$650 Million Investment
Q: What are the benefits of the $650 million investment?
A: GE is investing $650 million to enhance its domestic manufacturing footprint. The investment focuses on operationalizing FLIGHT DECK, expanding capacity, and advancing technologies like additive manufacturing and ceramic matrix composites to meet future demand. -
Customer Tone
Q: Is GE gaining ground in narrow-body engine competitions?
A: GE is encouraged by increasing win rates in the narrow-body market over recent years. The company remains focused on securing new business and continues to work hard despite ongoing supply chain challenges and competition.
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