The General Electric Fourth Quarter 2023 Earnings Conference Call began with the host, Steve Winoker, introducing the CEO Larry Culp, CFO Rahul Ghai, and GE Vernova CEO Scott Strazik. The conference coordinator, Liz, reminded participants that the call was being recorded and provided instructions for technical issues. Larry Culp discussed the company's progress in 2023, including the successful spin of GE Healthcare and the lean transformation of the company. He also mentioned the launch of GE Aerospace and GE Vernova in April 2024. The company saw tripled earnings and increased free cash flow in 2023, with strong performance in GE Aerospace and positive results from Renewable Energy and Power. In the coming year, they expect continued growth from both GE Aerospace and GE Vernova.

GE Aerospace is a successful company with a large fleet of commercial and military engines and a focus on safety and customer satisfaction. Despite supply chain challenges, they have seen growth in engine deliveries and are implementing lean practices to improve efficiency and quality. They also have a strong backlog of orders, as seen at the Dubai Airshow where they received commitments for over 450 engines and service agreements.

GE Aerospace is focused on keeping its customers' fleets flying through durability and maintenance enhancements, as well as investing in research and development for future technologies. NASA has selected GE Aerospace for a program that will improve fuel efficiency and reduce emissions. GE Vernova's goal is to electrify and decarbonize the world, with their technologies generating 30% of the world's electricity. Power, Grid, and Onshore businesses have shown strong growth and profitability, while Offshore remains challenging. GE Renewable will soon become a standalone business. The CEO is proud of the team's work and has seen the leadership of Scott, who has led the impressive turnaround at Gas Power and is now building strong momentum with Onshore and Grid businesses.

The article discusses the performance of GE Vernova and GE Aerospace, two of GE's stronger and more valuable businesses. The company has assembled strong boards and simplified its balance sheet, and plans to publicly file its Form 10 next month. GE Vernova and GE Aerospace will also be hosting Investor Days in March to showcase their plans for creating value for customers and shareholders. The article then turns to the financial results for the year, which saw solid growth in orders, revenue, and adjusted operating profit. Adjusted EPS was also up significantly, and free cash flow was strong due to progress collections and positive working capital. Overall, the company's performance exceeded their guidance for the year.

In 2023, GE saw significant growth in adjusted operating profit and expanded margins due to growth in the aerospace and renewables sectors, as well as price increases. Adjusted EPS also increased and free cash flow was up. The company also saw improvements in its working capital and reduced costs. GE is pleased with the performance of its digital software and the readiness of its aerospace and Vernova teams. The company expects continued growth in revenue, profit, and cash in 2024 for GE Aerospace and GE Vernova. Demand for GE and CFM engines remained strong, with a 10% increase in orders this quarter.

The company's revenue increased by 12%, with commercial revenue up 15%. Profit also increased by 8%, driven by higher services volume and pricing. However, there was a decrease in margins due to unfavorable equipment mix and investments. The company's lean practices have helped to increase capacity and decrease costs. In the commercial sector, services revenue increased by 23% and spare parts and internal shop visits also saw growth. In the defense sector, book-to-bill was 1x and revenue was down 1%, with lower services offset by higher combat engine deliveries. Overall, revenue for the year increased by 22%, with commercial services and engines both seeing significant growth. Profit also increased by 25% due to services growth and pricing, but was partially offset by negative mix and investments. Margins expanded by 90 basis points on a reported basis and 50 basis points on an organic basis.

The paragraph discusses the financial results of GE Vernova, a newly launched company focused on electrification and decarbonization. The company's strong leadership team and operational turnaround have led to significant improvements in revenue, profit, and cash flow. Renewable Energy and Power businesses have driven double-digit revenue growth and profitability, with a record order for a wind project in the US. The cancellation of a large offshore order impacted fourth-quarter results, but excluding this, orders grew over 20%. Overall, orders for the year were up over 50%, with significant improvements in profit driven by price, quality, and productivity.

In the past year, the company's free cash flow improved by $0.5 billion due to better earnings and higher down payments. The Grid business saw profitability and a doubling of backlog, while Lean practices helped increase production capacity and reduce lead times. Onshore equipment orders and backlog also increased significantly, with improved margins and a focus on higher quality products. Offshore wind faced challenges and incurred losses, but the company is implementing lean practices and expects to complete its backlog in the next two years. The Gas Power sector had a strong year, with a 4% increase in orders and double-digit growth in gas services.

Equipment orders declined as the company exits steam new build, but revenue increased by 12% due to growth in gas and equipment revenue. Services were strong and profit was over $750 million with low double digit margins. The company expects high single digit revenue growth in the first quarter, with adjusted EPS more than doubling year-over-year and free cash flow growing in line with net income. The spin of GE Aerospace and GE Vernova will affect future reporting.

GE Vernova is expected to see substantial profit and free cash flow growth in 2024, with solid organic growth and improved margins. The company's Gas Power, Onshore, Offshore, and Grid segments are all expected to contribute to this growth. The guidance assumes some costs related to the carveout process, but overall, the company is confident in its ability to lead the energy transition.

In 2024, GE Aerospace expects solid revenue growth, with double digit growth in commercial and mid to high single digit growth in defense and systems. Operating profit is expected to be $6.6 billion to $7.1 billion, with free cash flow over $5 billion. The company remains focused on using lean to improve customer service and deliver value for shareholders. The GE team is credited for their work in 2023 and the company is confident in the future, with industry leaders in aerospace and electrification.

Steve Winoker thanks Larry and asks the analysts to consider their fellow analysts and ask one question so they can get to as many people as possible in the next 20-25 minutes. Myles Walton asks about the high teens growth in commercial engines and Larry responds that engines will lead the way with a high teens increase and services will be in the mid-teens. He also mentions that spares ratio will moderate. Joe Ritchie asks about bridging the free cash flow comments from 2023 to 2024 and Scott Strazik responds that there will be a meaningful pickup in 2024 and discusses the puts and takes in the low and high end of the guide for 2024.

The speaker discusses the company's expected free cash flow for 2023 and how it will be affected by various factors, such as offshore wind execution and the timing of a transaction with EDF. They also mention their confidence in seeing improvement in 2024. The next speaker asks for more details on the company's commercial services outlook for 2024, specifically in terms of spare parts, pricing, and LEAP turnaround times.

Julian Mitchell asked a question about GE's free cash flow for Vernova. He wanted to understand the assumptions made for working capital and orders growth for 2023. He also asked about the interest expense included in the cash guide.

The executives of GE Vernova discussed the company's free cash flow and orders for the upcoming year. They stated that the majority of GE debt will remain with GE Aerospace, minimizing the impact on GE Vernova's free cash flow. They also mentioned a large SunZia order and HVDC orders with tenant in the fourth quarter, but do not expect similar orders in 2024. The orders profile for Onshore wind is expected to be back-end loaded, while orders for Grid will be more flattish than up, with a 20% growth in orders in 2023.

The company expects to see continued strength in the demand for renewables, which will contribute to their significant free cash flow growth. The CEO also addresses the recent quality lapses in the industry and emphasizes the company's focus on safety and continuous improvement in their operations.

The company has implemented various checks and audits to ensure safety and quality in their products, both in the commercial and defense sectors. The leadership behaviors of humility and transparency also contribute to this effort, as they encourage employees to come forward with any issues so they can be addressed and corrected. The 777X platform will be a financial headwind for the company in the near future, but they are excited to be a part of it and are focused on improving its cost structure and building a strong installed base for future service annuities. The 9X engine has been a negative impact on free cash flow, but it is not a significant driver for the company's overall free cash flow in 2024.

In the first quarter, GE is expecting strong revenue growth in the Aerospace sector, with margins remaining flat to slightly up. Renewables will see profit improvement, but it will be more back-end loaded due to order to revenue conversion lag. Power will experience typical seasonality with low single digit growth and some margin expansion. Additionally, due to the standalone expenses for Vernova and Aerospace, the corporate expense for GE will be effectively zero in the first quarter.

The speaker discusses the margin guidance for the first quarter and the projected margin growth for the next few years. They mention that 2023 is expected to be a strong year with higher profits and margins compared to initial expectations. 2024 is expected to have double digit profit growth, but with pressure on the margin rate due to the OE ramp and 9X introduction. The biggest driver of profit growth in 2025 will be the increase in top line improvement, offsetting inflation and productivity. However, mix will continue to be an issue due to LEAP OE and services volume ramps, and 9X volume ramp in 2025.

The company is expecting a profit of $7.1 to $7.6 billion in 2025, which is in line with their previous expectations but adjusted for additional expenses. The next question is about the 2024 margin expectations for Vernova, and the company expects Gas Power, Onshore Wind, and Grid to perform better than expected, while Offshore is facing challenges. Gas, Grid, and Onshore represent 80% of the company's revenue, but Offshore backlog will be difficult to execute through.

The speaker discusses the company's three largest businesses, which are expected to continue to grow and become more profitable in the next few years. The Offshore backlog is expected to decrease, allowing for an increase in margins in 2024. The digital business has returned to profitability, and there are plans to share more about other smaller businesses in the future. The speaker also mentions the strong outlook for GE Aerospace in 2024. The speaker also mentions the company's capital allocation priorities, including share purchases and debt pay down.

The company expects flat margins with a two-point pressure due to various factors such as the ramp-up of LEAP OE, introduction of 9X engines, and increased R&D. However, this pressure will be offset by volume and productivity from strong services growth. The CEO also mentioned that there will be no changes in terms of capital allocation strategies for both businesses, but more details will be shared at the investor Days in March.

The speaker is discussing the future plans for GE Aerospace, mentioning that they will be moving away from deleveraging and focusing on investing in opportunities related to the energy transition. They also mention that GE Aerospace will report their first quarter results in late April and will have a separate call for GE Vernova. The speaker concludes by thanking the listeners and mentioning the upcoming Investor Days in March.

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