Q4 2023 Earnings Summary
- *1. GE Aerospace anticipates high-teens growth in commercial engines in 2024, with LEAP engine deliveries expected to increase by 20% to 25%, driving substantial revenue growth. **
- *2. GE Aerospace expects mid-teens growth in commercial services in 2024, supported by a 6% increase in departures, higher shop visits up low double digits to mid-teens, and benefits from pricing and work scope improvements. **
- *3. GE Vernova projects substantial profit and free cash flow growth in 2024, aiming for $700 million to $1.1 billion in positive free cash flow, up from $600 million in 2023, driven by EBITDA growth and improved working capital. **
- GE Aerospace margins are expected to be flat year-over-year in 2024 despite revenue growth, due to margin pressure from increased costs associated with LEAP engine ramp, introduction of 9X engines, and incremental R&D investments, resulting in about 2 points of margin pressure.
- The Renewables segment's profit improvement is back-end loaded, with the first quarter expected to be similar to the weak fourth quarter, delaying profitability improvements. Additionally, incremental corporate expenses are being absorbed by Vernova, impacting margins.
- GE Vernova's free cash flow improvement depends heavily on successful execution of Offshore Wind projects, which is challenging due to a tough offshore backlog of $4 billion to be executed over two years, posing risks to cash flow targets.
-
Vernova Free Cash Flow Guidance
Q: What drives Vernova's 2024 free cash flow outlook?
A: Vernova expects to generate positive free cash flow of $700 million to $1.1 billion in 2024, up from $600 million in 2023. This improvement is driven by EBITDA growth ranging from low single-digit to high end of mid-single-digit. Key variables affecting the range include Offshore Wind execution and the timing of the EDF transaction closing. -
Aerospace Margins Progression to 2025
Q: How will Aerospace margins reach 20% by 2025?
A: Aerospace margins are expected to be flat from 2023 to 2024 due to LEAP OE ramp and GE9X introduction. Profit growth in 2025 will be driven by top-line improvement, pricing offsetting inflation, and productivity gains. Despite mix pressures from LEAP volumes and GE9X ramp, Aerospace aims for $7.1 to $7.6 billion of profit in 2025, translating to roughly 20% margins. -
Vernova's 2024 Margins and Onshore Wind
Q: What are the expectations for Vernova's 2024 margins?
A: Vernova anticipates margin improvement in 2024, with Onshore Wind expected to reach high single-digit margins and Grid at mid-single-digit margins. Gas Power is already at low double-digit margins and continues to accrete. Challenges remain in Offshore Wind due to a tough backlog. -
GE9X Impact on Free Cash Flow
Q: How will GE9X production affect free cash flow?
A: GE9X production will be a financial headwind in 2024 as the company begins shipping engines in the back half of the year, ahead of EIS in May 2025. While it negatively impacts free cash flow, it's not a material driver overall; GE expects over $5 billion of free cash flow in 2024. -
First Quarter Guidance Details
Q: Can you detail first-quarter guidance by business?
A: Aerospace revenue is expected to be up mid-teens in Q1, with margins flat to slightly up year-over-year. Renewables improvement will be back-end loaded; Q1 will look similar to Q4. Power anticipates low single-digit growth with some margin expansion. Corporate expenses will be fully absorbed by the businesses, effectively being zero at the corporate level in Q1. -
2024 Commercial Services Outlook
Q: What underpins the mid-teens growth in commercial services?
A: The mid-teens services growth in 2024 is based on a 6% increase in departures and a catch-up in shop visits, expected to be up low double digits to mid-teens. Internal shop visits will grow more rapidly than spare parts, with spares growth moderating below shop visit growth. Pricing benefits and work scope improvements also contribute. -
LEAP Deliveries and Spares Ratio
Q: Are LEAP deliveries and spares ratio changing in 2024?
A: LEAP unit growth is anticipated to increase by 20% to 25% in 2024. Installations will get ahead of spares, causing the spares ratio to moderate towards the historic average.
Research analysts covering GENERAL ELECTRIC.