The operator welcomes participants to the General Electric Third Quarter 2023 Earnings Conference Call and introduces the host, Steve Winoker, Vice President of Investor Relations. Winoker is joined by CEO Larry Culp and CFO Rahul Ghai. Culp addresses the recent attacks in Israel and announces a $0.5 million contribution to support humanitarian efforts. He then discusses the company's strong performance in the quarter and the growth in GE Aerospace, particularly in commercial engines and services. The company's fleet of engines is expanding as they work towards shaping the future of flight.

GE and Safran are facing challenges in their supply chain, but have still managed to increase commercial engine deliveries by 30% this year. They are also investing in R&D and developing new technologies, such as hybrid electric systems and sustainable aviation fuel. In addition, they have secured contracts in the defense sector, including for the future attack reconnaissance aircraft and Long-Range Assault Aircraft programs. However, they are not yet satisfied with their results.

Through lean transformation, GE is improving flow and eliminating waste, with the team in Pune, India increasing output by 3x. They are working with suppliers to improve output and turnaround times. Performance is strengthening at GE Vernova, with profitable growth expected in Grid and Onshore Wind. The team is using lean to drive a turnaround and deliver profitable growth, with lead times reduced by 15% and a focus on fewer markets and workhorse products resulting in higher margins in backlog.

GE is still working on reducing costs and streamlining operations, with a focus on improving fleet reliability. Offshore Wind continues to be a challenge, but improvements are expected in cash performance. The company is also making progress in its wind business, with a new CEO appointed to oversee both onshore and offshore operations. GE is taking a disciplined approach to writing new business and is confident in its plan to spin off GE Vernova in the second quarter. The company is on track to create three independent industry leaders by launching GE Aerospace in 2024.

In the fifth paragraph, the speaker discusses the upcoming listing of GE Vernova and GE Aerospace on the New York Stock Exchange, as well as recent hires and promotions within the businesses. They also mention the completion of the functional leadership team at GE Aerospace and the addition of a new CFO at GE Vernova. The company has also simplified and strengthened their balance sheet through the redemption of preferred equity and sale of AerCap shares. They are approaching key spin milestones and plan to hold investor days in early March. The speaker then hands over to Rahul for a more detailed discussion of the quarter's results, which saw double digit growth in orders, services, and equipment, as well as increased revenue and adjusted margins across all segments.

GE's financial results for the year were strong, with adjusted EPS increasing and free cash flow up significantly. The company's corporate results also improved due to gains in energy financial services and higher interest income. GE Aerospace and GE Vernova both performed well, leading to an increase in full year guidance for revenue growth and adjusted EPS. Demand for GE Aerospace products remains strong.

GE's orders and revenue have significantly increased, with a 34% growth in orders and a 25% increase in revenue. This growth was driven by strong performance in both equipment and services, particularly in the commercial engines and services sectors. Profit also saw a significant increase of over $400 million, with margins expanding by 120 basis points. In the commercial business, services revenue saw a 31% increase, while commercial engines revenue grew by 23%. However, supply chain constraints have impacted growth in internal shop visits. In defense, book-to-bill remains strong and revenue is expected to grow in the low 20s. GE Vernova has also seen improved results, particularly in the grid and onshore sectors. Renewable orders have increased by 3% this quarter and over 80% year-to-date. Grid orders have also grown by over 50%, with the potential for growth in grid services.

In the onshore market, North American equipment orders and revenue increased significantly, driven by the IRA and strong demand visibility. Internationally, onshore orders were down but margins improved due to selectivity. Grid revenue also grew with double-digit growth in all businesses. Offshore revenue tripled and profit improved due to turnaround efforts. In the power sector, revenue and margin expanded with higher heavy-duty gas turbine orders. Services orders and revenue grew slightly, while profit increased by 60% with margin expansion. Overall, the company maintains its guidance for significantly better profit and low double-digit revenue growth for the year.

The paragraph discusses the growth and performance of GE's power division, including increased orders, revenue, and margins. It also mentions the successful shipment of HA units and the expectation for continued growth in services. The overall performance of GE Vernova is expected to result in high single-digit revenue growth and improved profits. The company's CEO, Larry Culp, expresses confidence in the company's future and the upcoming launch of two industry leaders.

In this paragraph, Steven Winoker asks analysts to limit their questions so that more people can ask questions. The first question comes from Scott Deuschle about the lower LEAP delivery guide and its impact on 2024. Rahul Ghai and Larry Culp explain that the decrease in LEAP deliveries is due to supply chain challenges. The next question comes from Nigel Coe about offshore losses for renewables, and Larry Culp responds that they are pleased with the overall performance of renewables, but offshore will continue to be difficult.

Rahul Ghai, CEO of a company, discussed the progress they have made in their operations, but acknowledged that their financial profile is problematic. They plan to work through their backlog and expect sequential improvement in profitability, but offshore wind will continue to be challenging. They believe they can make a better business with offshore wind by applying the same selectivity strategies used in their other businesses. In response to a question about aftermarket expectations, Ghai mentioned that they expect mid to high 20s growth this year, with a 35% increase in spare part revenue due to increased volume, pricing, and work scope.

In the third quarter, the company saw strong growth in volume from mid teens departures and increased demand for spare parts. This was aided by the ease of shipping spare parts compared to completing a shop visit or engine. The company also implemented a high single digit price increase and maintained strong pricing discipline. The heavier work scopes on both narrow-body and wide-body aircraft also contributed to higher spare parts growth. Looking ahead, the company expects mid-20s growth in spare parts and low to mid teens growth in shop visits for the year.

The speaker, Larry Culp, is discussing the current state of the company's renewables sector. He mentions that despite challenges in the supply chain, shop visits have increased in the third quarter and they expect to see low to mid teens growth for the year. The next question from an analyst is about any changes in new orders for renewables, to which Culp responds that they have seen healthy demand despite the tough environment for project development and financing. He also mentions the strong demand for onshore and grid projects and states that they remain optimistic for the future. Culp also notes that offshore projects have their own dynamics and they are feeling good about the overall demand environment.

The demand environment for GE is strong and they are seeing better pricing and selectivity in their strategy. Their grid backlog margins were up three points and onshore backlog margins were up seven points in the quarter. This is expected to help with their turnaround efforts in 2024. The cash balance at spin is expected to be investment grade for both Vernova and Aerospace, with Vernova spinning in a net cash position. There is enough cash on the balance sheet at GE to ensure both companies have enough operating cash at the time of spin. An update will be given as they get closer to spin. Sheila Kahyaoglu asks about aerospace margins.

The speaker discusses the strong performance of GE Aerospace in the last quarter, with 25% revenue growth and 120 basis points of margin expansion. The company has raised their guidance for the year, with a 50% drop through for incremental revenue. The fourth quarter is expected to have a lower sequential growth due to timing of spare part shipments, but GE Aerospace is still expecting low 20% revenue growth and close to a point of margin expansion for the year. LEAP deliveries are slightly lower than expected, but there is still a substantial ramp expected in the fourth quarter.

The company's LEAP deliveries have been pushed out to 2024 and 2025, resulting in a margin headwind in those years. The speaker also discusses the increase in free cash flow and the progress made in having a more linear approach to running the business. They mention the steady demand in Aerospace and Vernova and the potential for cost savings as they continue to improve linearity and reduce end-of-year sprints.

During a conference call, Steven Winoker asks Larry Culp about the company's fourth quarter numbers. Culp responds that the defense business had high single digit growth in the quarter and they are making progress, but still have room for improvement. The supply chain challenges are their main focus, and they are working on improving their internal processes and increasing capacity. Culp also mentions delays from suppliers affecting their on-time performance.

The company is encouraged by the progress being made with FARA and the support for XA100 from Congress. They see plenty of opportunities for growth in the rotorcraft and combat business. However, they acknowledge the need for better execution and the importance of suppliers in that effort. The team is looking forward to more attention being paid to the defense business after the Vernova spin. The company is also dealing with a disconnect between actual and adjusted free cash flow, which they attribute to factors such as warranty and other issues. They believe these factors will normalize by 2024 when the independent companies are formed.

The company is expecting to generate $4.9 billion in free cash, an increase from last year. This is mainly due to earnings growth and efficient management of working capital. Ground inventory has increased due to supply chain challenges, but is expected to decrease in the fourth quarter. The company is confident in its cash flow performance and expects to have a free cash flow to net income ratio of 160% or 130% without amortization. Most of the adjustments below the line are related to spin-related expenses and restructuring costs.

Larry Culp, CEO of GE, discusses the company's plans for the future in terms of restructuring and cost reduction. He mentions that there may be some ongoing costs in 2024 and 2025, but after that, the company should see improvement. He also addresses the question of onshore wind capacity and states that while they are not sold out, there is a limit to what they can deliver in the next few years. He notes that their focus has been on improving processes and reducing costs, and any future investments in fixed capital will be done gradually.

Larry Culp, CEO of GE, discusses the strong performance of the onshore wind team in the third quarter and their potential for continued success in the fourth quarter and beyond. He also mentions the upcoming spin of Vernova, which will likely occur in the early second quarter. Culp expects the onshore wind business to be profitable in the second half of the year, but not for the full year. However, he is optimistic about their potential to achieve low single digit profitability in 2024 and hopes to improve upon that through budget planning.

Rahul Ghai and Larry Culp discuss the expected margins for renewables, with onshore expected to have low single digit margins, grid in the mid single digit range, and offshore with similar levels of losses as the previous year. However, overall there is a significant improvement in profit and cash compared to the previous year. Larry clarifies that the progress seen in Dogger Bank and Vineyard is operationally encouraging but financially difficult due to revenue recognition and losses. The next question asks about the strong margins in aviation and if it changes the company's 2025 target of 20%, to which Rahul responds that there are many positive developments happening in the company.

The speaker discusses the positive impact of price on their company's performance, stating that they have been price-cost positive in Aerospace in 2022 and will continue to be in 2023. They have also made progress on productivity and are encouraged by the underlying progress in their inventory numbers. They mention a goal of achieving a 20% margin by 2025, with expected profit growth each year, but also mention potential headwinds such as LEAP and R&D investment. The speaker expresses confidence in their company's future and thanks the audience for their support.

The paragraph is the end of a conference and thanks the participants for attending before instructing them to disconnect.

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