GE's second quarter 2023 earnings call was hosted by Steve Winoker, Vice President of Investor Relations, and was joined by Chairman and CEO Larry Culp and CFO Carolina Dybeck Happe. Rahul Ghai, CFO of GE Aerospace, will join them for Q&A in September. Larry Culp reported strong double-digit growth in orders, revenue, operating profit and cash, and raised full year guidance due to the success of the businesses. He also noted the progress, passion, and purpose within the businesses when he visited France last month.

At the Paris Air Show, GE Aerospace shared their vision for the future of flight and discussed opportunities and challenges with customers, suppliers, and investors. CFM's RISE demonstrator program aims to reduce fuel consumption and CO2 emissions, and GE Vernova has reduced cycle times to assemble cell roofs by nearly 50%. Services make up 70% of GE Aerospace's revenue and half of GE Vernova's revenue, and the two companies are set to become independent investment grade companies next year. Rahul has become an influential member of the GE Aerospace leadership team since joining last year.

Carolina Happe thanked the GE team for their efforts in the second quarter, which led to double-digit growth across all headline metrics. Orders increased 58%, while revenue increased 19%. Adjusted margin expanded 160 basis points, leading to double the earnings per share from the previous year. Free cash flow was also more than double what was delivered the year before.

GE reduced working capital in the first quarter, and their first half free cash flow was up $1.5 billion year-over-year, with $0.5 billion lower working capital than in 2022. Corporate expenses were up year-over-year, and GE is simplifying and strengthening the business foundations before the launches of GE Aerospace and GE Vernova. GE partially monetized their GE Healthcare stake and will call the remaining outstanding GE Preferred Stock in September. Additionally, GE recorded a $1 billion charge in discontinued operations due to a settlement program for a Polish mortgage portfolio. Overall, GE is pleased with their spin progress and first half results, with adjusted EPS up more than three times compared to a year ago.

GE Aerospace showcased industry leading solutions for both commercial and defense across propulsion, systems and services, and signed a historic MOU with Hindustan Aeronautics Limited to produce jet fighters and jet fighter engines for the Indian Air Force. This quarter, commercial business secured major deals with Riyadh Air, Jet2 and more, and the team used Plan For Every Part to reduce lead times and increase engine deliveries by 35%. Departures have almost returned to pre-COVID levels.

The quarterly results for the company showed strong growth with orders up 37%, revenue up 28%, and profit increasing by nearly $350 million. The Commercial Engines and Services division had 32% revenue growth with LEAP deliveries up 80% year-over-year. Defense also saw significant growth with orders more than doubling and engine output increasing by 70%. The company is expecting mid-to-high 20s growth for commercial engines revenue and above 20% growth for commercial services revenue. The XA100 engine is the only tested and ready option to ensure U.S. air superiority and the House has recognized its importance by including funding in the National Defense Authorization Act and in the House Appropriations Committee defense bill.

GE Vernova is seeing long-term growth in demand for sustainable, affordable, and resilient energy. This quarter saw record orders in Grid and strong orders in Onshore Wind, driven by North American incentives. Revenue grew 27% organically and profit improved year-over-year and sequentially. GE Vernova is managing inflation and improving profitability by enhancing their underwriting rigor and focusing on select markets with fewer product offerings.

In the first half of the year, GE has seen significant improvements in their reliability and cost rationalization. Their fleet enhancement program is almost 30% complete and they expect to be more than halfway done by year end. Their Onshore Wind and Grid businesses have seen double digit revenue growth and margin expansion. Power has delivered solid results and reliable earnings and cash flow, and they are working with the province of Ontario on the planning and licensing process for three small modular reactors. Gas turbine utilization grew at a low single digit rate with high single digit orders, but revenue declined slightly due to shipment timing. Services have grown and margins have expanded, driven by price, productivity, and higher contractual outage volume.

GE Aerospace has had a strong first half of the year, with margins at 18.9%. The full year guidance is 18.5%, however, despite good market strength, efficiency improvements, and shipping 46% of the LEAP ahead of expectations, margins are expected to contract in the second half.

Larry Culp and Rahul Ghai discussed the strong second quarter results of the company with 28% organic growth, commercial engines up more than 50%, and services continuing a strong run with 30% plus growth. Profit was up more than 30% year-over-year with margin expansion. The strong results gave the company the confidence to raise their full year profit by $1 billion with a $400 million revenue increase. The key driver of the sequential growth between the first half and second half is commercial OE, which is up approximately 60%.

Larry Culp discussed the offshore orders they had coming and the details they needed to lock down, as well as their plans to build out their Offshore business and production in Saint-Nazaire. He also noted the optimism about Offshore Wind as customers prepare for the next decade.

GE Vernova is making progress in its Onshore, Grid, and Offshore Wind businesses. The team has done a good job addressing quality issues that triggered a charge in the third quarter of last year, and the cost base is 30% lower than it was a year ago. In Aerospace, GE Vernova expects pricing to play a role in offsetting mix headwinds in the second half of the year.

Rahul Ghai explains that the positive pricing trend seen in both defense and commercial sectors has continued and is expected to remain price cost positive for the year. Spare part sales saw strong growth of more than 40% in the quarter, which was driven by price increases, favorable customer mix, and a weak compare in the second quarter in China due to shutdowns.

In the second half of the year, spare parts growth is expected to continue, albeit at a slower rate. In the renewables business, there was a strong revenue uplift, but the incremental growth was not particularly strong due to wider offshore losses. Looking ahead to 2023, the focus will be on improving sequential growth in Onshore Wind, which will be helped by improved backlogs, pricing, and terms and conditions, as well as better market conditions.

Vernova is raising both revenue and profit guidance for the year, with both power and renewables contributing to the increase. This is reflective of the higher quality product being delivered to customers, as well as the restructuring that has been underway. Offshore Wind is contributing to the losses due to the start-up, but the progress in Onshore Wind and Grid gives confidence that the teams are running the business as desired. This progress bodes well for the back half of the year and for next year.

Larry Culp was asked about the need to get the LEAP-1B on the A220 family by Robert Spingarn. Culp said that they are in deep with both airframers and that they want to be on all critical platforms, but he kept his comments private and said they would have the conversation with Guillaume and his team. Deane Dray then wished Carolina Happe the best and thanked her.

Larry Culp and Deane Dray discuss the range of customer modifications within the renewable orders that GE booked and the efforts to standardize offerings. Culp mentions that they are seeing the positive effect of this in the order book and that they are estimating costs conservatively. He believes this, along with quality improvement and a reduced cost structure, is why they are optimistic about the back half of the year and profitability in 2024.

Rahul Ghai discussed the trajectory of free cash flow for renewables and power. He said that for renewables, it would be flat to last year with $150 million in earnings, offset by the absence of progress payments and the way contract assets are playing out. For power, free cash flow could be slightly down year-over-year due to contract assets, but revenue growth and outages are helping. Ghai expects strong sequential improvement year-over-year in Vernova business overall for 2024.

GE is expecting high single-digit revenue growth in the third quarter, with an EPS range of $0.45 to $0.55 and sequential profit growth in both Aerospace and Renewables. In addition, GE is taking a $1 billion charge on the Polish Bank to reduce their exposure to future losses, though there is no cash involved. Power is expected to have strong growth in profit and margins, and even excluding the charge, the EPS is expected to be 2x what it was last year.

In the Defense arena, the supply chain challenges have been a challenge for GE, but they have seen improvements in material flow and yields, which has allowed for improved deliveries. They have implemented a 'Plan for every Part' system to help with pull and turn improved deliveries.

Larry Culp states that there has been no change in their perspective regarding capital allocation and spend prior to the launch of Vernova in early 2024. He also mentions that they are seeing good demand and improvements in year-over-year delivery, which puts them back on track for the full year.

GE's first half results for their renewable energy division were up 12%, and they are expecting high single digit revenue growth for the full year. However, they anticipate the revenue growth to slow down to low single digits in the second half of the year. The team is focused on the successful spin of GE Vernova and successful standup of GE Aerospace.

GE's orders have been strong in the first half of 2023, but the revenues will not be seen until 2024 and 2025. Despite this, they are still making good progress and have raised their guidance for renewables and revenue growth. Larry Culp closed the conference by expressing his confidence in the company's path ahead, with the launch of GE Aerospace and GE Vernova.

This summary was generated with AI and may contain some inaccuracies.