Q3 2024 Earnings Summary
- Electrification Business Experiencing Significant Growth: GE Vernova's electrification segment achieved 24% revenue growth in the third quarter . The backlog is projected to more than triple from the beginning of '23 by the end of the year, indicating strong demand . The company is efficiently expanding capacity using existing assets, requiring minimal capital expenditure .
- Increasing Demand for HA Gas Turbines with Favorable Economics: There is a healthy shift towards HA gas turbine orders, driven by hyperscalers developing large data center parks requiring baseload power . GE Vernova has almost 60 gigawatts of HA gas turbines commissioned today . The growing demand is expected to bring very good equipment economics and long-term services revenue, enhancing life cycle profitability .
- Positive Outlook in Nuclear Energy with Established Technology: Global plans to triple nuclear capacity by 2050 present significant opportunities . GE Vernova is poised to capitalize on this growth with its BWRX small modular reactors, using established technology for faster time to market . The first 300-megawatt unit is expected to be operational in 2029, with construction starting next year in Canada .
- GE Vernova's capacity expansion for gas turbines is limited to 70–80 units per year starting in 2026, and they do not anticipate going materially higher than that number, potentially limiting future growth opportunities.
- 25% of the capacity doubling in the electrification business requires capital expenditures for site expansion, indicating increased capital requirements and potential pressure on cash flow.
- The company acknowledges that manufacturing slots are scarce, and beyond 2025 they will be focused on filling slots for 2028 deliveries, which may constrain their ability to meet higher future demand promptly.
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Offshore Wind Backlog and Blade Issues
Q: How is the $3 billion offshore backlog being worked down, and what's the status of turbine blade issues?
A: Management acknowledged delays in offshore wind project execution, shifting completion of the $3 billion backlog beyond 2025. They are exploring options like incremental vessels to increase pace. On blade issues, they identified a manufacturing deviation affecting a small, low single-digit percentage of blades. Remedial actions are underway, and installation activities at projects like Dogger Bank and Vineyard Wind are resuming. They have taken a $700 million charge to account for these issues. -
Power Equipment Orders and Demand Outlook
Q: What gives confidence in accelerating power equipment orders, especially in the fourth quarter?
A: Power equipment orders are up 34% in the third quarter. The company has taken orders for 14 gigawatts of gas turbines year-to-date, twice the level of last year. They expect the fourth quarter to be the strongest of 2024 and see 2025 orders similar or modestly stronger, with a larger tilt towards North America and hyperscaler customers. -
Gas Power Margins and Pricing Environment
Q: Can gas power margins return to early 2000s levels, given current pricing?
A: Management is confident in expanding margins throughout the decade. The larger services business today and better pricing environment for HA gas turbines support this. Higher pricing benefits are expected to reflect in revenue from the second half of 2026 onwards. -
Gas Power Orders Run Rate and Supply Chain Capacity
Q: Is the current surge in gas power orders sustainable, and can supply chain meet demand?
A: The company expects 2025 orders to be equivalent or modestly better than 2024. They have secured capacity to produce 70 to 80 gas turbines per year, up from 55, with capacity cutting in mid-2026. They worked with the supply chain over six months to secure this capacity. -
Nuclear SMRs Growth Trajectory
Q: How significant are SMRs in the overall growth trajectory, and what are initial expectations?
A: Management sees strong sentiment and commercial activity around SMRs but notes that meaningful revenue impact will occur in the early next decade. The first 300-megawatt SMR is set to be commissioned in Canada in 2029. -
Evolving Customer Profile and Competition
Q: How is the customer profile changing, especially with hyperscalers, and how is GEV positioned?
A: GE Vernova is engaging with new types of customers like hyperscalers. In nuclear, while new customers show interest, traditional nuclear operators will likely run plants. GEV has confidence in serving this growing market, leveraging established technology and time to market advantages. -
Onshore Wind Performance and Orders Inflection
Q: Can onshore wind performance be sustained without an orders inflection?
A: The company expects flat revenue in 2025 with improved profitability. They have been remixing profitability and resizing the business to be profitable at about 1,000 turbines per year. They do not see the need for an immediate orders inflection to sustain performance. -
Product Mix for Hyperscaler Customers
Q: Are hyperscalers showing preference between aero and H-class turbines, and are there differences?
A: Hyperscalers are shifting towards HA gas turbines due to larger power needs for data center parks. HA turbines offer better equipment economics and life cycle services revenue, given their baseload operation. -
Electrification Demand and Capacity
Q: Can you support rising electrification demand, and are prices still increasing?
A: Electrification backlog is expected to more than triple by year-end. The company is doubling capacity, mainly through better asset management and adding shifts, requiring minimal capital expenditure. Pricing continues to improve, and they do not feel it has topped out.
Research analysts covering GE Vernova.