Q3 2024 Earnings Summary
- GE is effectively unlocking supply chain constraints through their FLIGHT DECK approach, leading to increased output by 18% from priority suppliers in Q3, which will support improved deliveries in Q4 and is foundational for growth in 2025.
- GE raised their earnings and cash guidance, with free cash flow expected to be $5.6 to $5.8 billion, due to strong year-to-date performance and a robust services outlook.
- Spare parts sales are growing, with GE seeing higher sales to external networks and implementing price increases, which supports their confidence in holding their services growth outlook for the year.
- Supply chain challenges are causing delays in engine deliveries and services, leading to deliveries below plan and expectations and creating a backlog of shop visits that need to be completed.
- LEAP engine deliveries are expected to be down year-over-year, with supply chain constraints, the Boeing strike, and the transition to new HPT blades potentially impacting future output and growth.
- Significant investments are required to meet demand, including a planned $1 billion over the next 5 years for MRO network expansion, which may strain resources.
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2025 EBIT Growth
Q: Will 2025 EBIT grow $1B off higher 2024 base?
A: Management is reassessing the 2025 outlook due to the higher 2024 EBIT guidance, which has increased by $550 million since March. They are working through updated plans and will provide detailed guidance in January. They anticipate continued strong earnings and free cash flow for 2025.
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LEAP Output Constraints
Q: How will LEAP output be impacted in 2025?
A: Despite supply chain challenges and transitioning to new HPT blades, GE expects to support increased LEAP engine production in 2025. They reported an 18% sequential increase in LEAP output in Q3. The new HPT blade will improve performance and unlock capacity, positively affecting 2025 production.
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777X Delay Impact
Q: What are the implications of the 777X delay?
A: The Boeing 777X delay has minimal operational impact on GE Aerospace. GE continues testing the GE9X engine and preparing for production ramp-up. They have started delivering engines to Boeing and expect the program to be profitable by 2030 after significant cost reductions.
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2025 OE Losses and LEAP Profit
Q: Will OE losses decrease and LEAP profitability improve?
A: With lower engine output than expected in March, OE losses should reduce in 2025. LEAP profitability is improving, with durability expected to reach CFM56 levels in 2025. Growing spare parts sales to external networks are enhancing profitability.
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Customer Concessions
Q: Are penalties affecting financials due to delivery delays?
A: GE is accruing for any required customer concessions, but these are not material in 2024. Deliveries are improving sequentially, and they expect continued progress as supply chain challenges ease.
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Shop Visits and Services Growth
Q: Why were shop visits down despite higher LEAP visits?
A: Supply chain challenges impacted shop visits for other engines. Spare parts sales increased, balancing internal and external network needs. Entering Q4 with a higher backlog, GE is confident in its services growth outlook.
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DPP Margins and 2025 Outlook
Q: What's driving DPP margin pressure into 2025?
A: Increased R&D investment for next-gen programs is pressuring margins. Despite this, a strong backlog supports mid- to high single-digit growth in 2025, with profit expected to grow faster than revenue, driving margin expansion.
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CFM Shop Visit Expectations
Q: How will CFM shop visits trend in coming years?
A: The peak of CFM shop visits is expected in 2025, sustaining at that level until 2027 before declining. Revenue growth will continue due to heavier work scopes and GE90 engines entering second shop visits, with 75% of the fleet yet to do so.
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777X Headwind in 2025
Q: Is there a 777X headwind in 2025 estimates?
A: There is a GE9X headwind in the 2025 projections due to the 777X delay. The impact is not yet quantified as they are working with Boeing on 2025 volumes. Program losses are expected to peak later in the decade, turning profitable by 2030.
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HPT Blade Certification
Q: Will HPT blade certification boost Q4 LEAP output?
A: The new HPT blade is in production, but certification timing will only modestly impact Q4 output. It's an important factor but not the sole driver; improvements are multifaceted.
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Supplier Capacity Improvements
Q: How will FLIGHT DECK improve supplier capacity?
A: The FLIGHT DECK initiative led to an 18% increase in output at priority sites, but more is needed. By collaborating with suppliers and investing $1 billion in the MRO network over five years, GE aims to unlock additional capacity to meet demand.
Research analysts covering GENERAL ELECTRIC.