GENERAL ELECTRIC CO Q1 FY2025 earnings call

• Focused on safety, with nearly a million people using GE Aerospace technology underwing. - Implemented FLIGHT DECK, a lean operating model, launched a year ago. - First quarter saw orders up 12%, revenue up 11%, profit up $2.1 billion (38%). - Invested $1 billion in U.S. manufacturing, hiring over 5,000 U.S. workers. - Advocated for zero-for-zero tariffs in aviation sector to maintain trade surplus. - Addressed tariff impacts by leveraging programs like duty drawbacks and foreign trade zones, aiming to reduce tariff costs to ~$500 million. - Commercial services backlog over $140 billion, but lag in revenue conversion due to supply chain. - In CES, secured agreements with ANA, Malaysia Aviation Group, and Korean Air. - In DPT, received $5B contract from US Air Force, made progress on RISE, T901, and XA102 programs.

GE Aerospace delivered a strong first quarter. In Commercial Engines & Services (CES), orders were up 15% with Services up 31% while Equipment was down 13% due to a tough comparison. Revenue was up 14%, led by Services up 17%, with spare parts revenue up more than 20%. Profit for CES was $1.9 billion, up 35%, and margins expanded to 27.5%. In Defense & Propulsion Technologies (DPT), orders were flat year over year, Services were up 14%, and Equipment was down. Revenue grew 1%, profit was up 16%, and margins improved to 12.7%.

• Maintain low double-digit revenue growth. - Expect profit of $7.8 billion to $8.2 billion, EPS of $5.10 to $5.45, and free cash flow of $6.3 billion to $6.8 billion. - Anticipate ~$500 million tariff impact after operational actions, mitigated by cost controls and pricing. - Adjusted full-year departure growth to low single digits from mid-single digits, reduced spare parts and spare engine sales due to tariffs, but maintain low double-digit to mid-teens services growth.

• Heightened tariffs resulting in additional costs for GE Aerospace and supply chain. - Macro-economic uncertainties impacting departures and demand. - Spare parts delinquency increasing over 2x year-over-year, with internal shop visit slots full.

Q: Doug Harned asked about interactions with the administration regarding aviation tariffs and potential scenarios.

A: Larry Culp stated they've spoken to senior administration officials, advocated for zero-tariff return, and are dealing with ~$500 million tariff headwind mitigated by cost controls and pricing.

Q: Sheila Kahyaoglu inquired about margin cadence in Q2 and second half regarding tariffs.

A: Rahul Ghai said Q2 revenue growth expected to be better than Q1, profit flat to sequentially up, and second half has uncertainty but still expects good year.

Q: David Strauss asked about second half departure assumptions and shop visits.

A: Larry Culp mentioned conservative view on second half departures, spare parts order book strong with 90% in backlog for Q2.

Q: Gautam Khanna asked about pricing strategy to offset tariffs.

A: Rahul Ghai said typical catalog price increases in summer, with temporary surcharge for tariff recovery and SG&A cost controls.

Q: Ken Herbert asked about spare parts purchasing and LEAP vs CFM56 dynamics.

A: Rahul Ghai said no pre-buys, LEAP growing faster with external shop visit revenue increasing.

Q: Myles Walton inquired about equipment gross margins.

A: Rahul Ghai said defense units contributing to margin, OE volume lower but widebodies profitable.

Q: Noah Poponak asked about cash flow deployment and duty drawback.

A: Larry Culp said ~$8B returns planned for 2025, duty drawback cycle ~4-5 months.

Q: Scott Deuschle asked about LEAP price increases in income statement.

A: Rahul Ghai said price increases take a few years to show in P&L due to contract timing.

Q: Seth Seifman asked about duty drawback working through supply chain.

A: Larry Culp said working with supply base, inventory needed for backlog.

Q: Jason Gursky asked about FAR rewrite impact on defense industrial base.

A: Rahul Ghai said FMS reform and acquisition process improvements support growth.

Q: Ron Epstein asked about rare earths sourcing.

A: Larry Culp said no immediate issues with alternate sources and inventory.

Q: Scott Mikus asked about balancing pricing to avoid demand destruction.

A: Larry Culp said balancing price increases with customer needs, using long-term principles.