GENERAL ELECTRIC CO Q4 FY2024 earnings call

Management Statement and Operational Highlights

• 2024 was a landmark year as GE Aerospace became a standalone public company in April. They launched the FLIGHT DECK operating model focused on safety, quality, delivery, and cost. Commercial momentum continued with key service agreements and over 4,600 engine orders. The LEAP-1A HPT durability kit was certified, and RISE program with CFM advanced. Defense team demonstrated hybrid electric propulsion.
• Financially, 2024 saw revenue up double digits, profit up $1.7 billion, and free cash flow up $1.3 billion. Fourth quarter had orders up 46%, revenue up 16%, profit up nearly 50%, and EPS more than doubled.
• Supply chain efforts: Deployed over 550 supply chain and engineering resources into the supply base, priority suppliers now ship over 90% of committed volume. Integrated engineering and supply chain into Technology & Operations. Expanded LEAP aftermarket capacity by ~40% in 2024.

Segment Performance

• Commercial Engines & Services (CES): Fourth quarter orders up 50%, revenue up 19%, profit increased 44%. Full-year services orders up 30%, total revenue up double digits, profit up 25% to $7.1 billion. About 90% of the $154 billion backlog is in services.
• Defense & Propulsion Technologies (DPT): Fourth quarter orders up 22%, defense units nearly doubled sequentially. Full-year revenue up 6%, profit increased 17% to $1.1 billion.

Guidance

• Expect low double-digit revenue growth in 2025. Profit range $7.8 billion to $8.2 billion. EPS range $5.10 to $5.45, up 15% at midpoint. Free cash flow $6.3 billion to $6.8 billion.
• CES expects mid-teens revenue growth, with services up low-double digits to mid-teens. DPT expects mid- to high-single digits revenue growth. Share repurchases increased to $7 billion, and dividend raised by 30%.

Risks

• Ongoing supply chain constraints with material availability challenges impacting internal shop visit volume and deliveries.

Question and Answer

Q: Rahul, can you refresh us on what the 2025 guide is assuming with respect to LEAP OE profitability?

A: Yes. It was a milestone year for LEAP. LEAP services became profitable in 2024, breakeven in 2025, OE breakeven in 2026. Profitability better than initial expectations due to higher external spare parts volume, better pricing, etc.

Q: Myles Walton asks about the sequential climb to '25 and what didn't translate.

A: Business performing extremely well. Corporate eliminations up ~$100M from higher PAT volume. CES profit up ~$700M at midpoint with services revenue up ~$3B. DPT mid to high single-digit revenue growth with margins expanding.

Q: Ron Epstein asks about GE9X beyond 777X.

A: Fully focused on helping Boeing launch 777X. Customer feedback strong, nearly 1,000 engines in backlog, with flight testing resumed.

Q: Sheila Kahyaoglu on CES margins and 2025 outlook.

A: CES had good quarter with favorable mix. Spare parts strong, shop visit revenue expected up mid-teens. Departures up mid-single digits, pricing changes baked in.

Q: Doug Harned on commercial services growth.

A: Broad-based demand strengthening. Need to execute on supply chain to deliver higher growth.

Q: Robert Stallard on LEAP spares ratio.

A: Spares ratio in low double digits, expected to gradually come down. Aligned with customers on production ramps.

Q: Seth Seifman on LEAP third-party shops.

A: About 15% of shop visits external, 25% of sold shop visits by third-party MROs. Margins will improve with external work.

Q: David Strauss on free cash flow forecast.

A: Cash growth driven by earnings. Working capital and AD&A combined positive but less than 2024. Inventory buildup less, contract assets less favorable. Higher cash tax and CapEx offset.

Q: Jason Gursky on labor productivity.

A: FLIGHT DECK principles help, but progress not fully translated due to supply chain. Expect better labor productivity in 2025 as supply chain improves.

Q: Gavin Parsons on supply chain bottlenecks.

A: Still working with ~15 critical suppliers. Progress made but not linear. Support airframers' ramps, including 737 MAX and Airbus.

Q: Robert Spingarn on inorganic expansion.

A: Strong bias toward shareholder returns, but M&A possible with small tuck-ins and adjacencies.