The GE Aerospace Second Quarter 2024 Earnings Conference Call is being led by Blaire Shoor, with Larry Culp, Chairman and CEO, and Rahul Ghai, CFO, joining. The company is an exceptional franchise with a large commercial propulsion fleet, and is focused on providing aftermarket services and ensuring safety and quality. The company's purpose is to invent the future of flight and prioritize safety, with a lean operating model called FLIGHT DECK.

At Farnborough, discussions are focused on the opportunities and challenges in the industry. GE has secured commitments for widebody engines from airlines like Turkish Airlines and National Airlines, as well as a new customer, British Airways, for their GEnx engines. The LEAP-powered Airbus 321XLR was recently certified and will enter service later this year. GE and Embraer have extended their agreement for CF34 engine deliveries. GE has also shared updates about their RISE program, which includes pioneering technologies such as Open Fan, Compact Core, and hybrid electric systems. These technologies are being tested and matured, with over 200 hours of wind tunnel tests conducted for the Open Fan design.

In the second quarter, the Department of Energy announced plans to expand supercomputing capabilities, which will benefit the development of the Open Fan engine technology. Despite lower output, GE Aerospace saw double-digit growth in orders, operating profit, and free cash flow. CES saw positive air traffic trends, leading to a 20% increase in profit. DPT also saw strong profit growth, driven by services growth and improved pricing. However, there was a 20% decrease in new engine output due to supply chain constraints, which GE is working to address with the use of FLIGHT DECK and partnership with suppliers.

The company has deployed resources to work with suppliers and resolve constraints, resulting in significant improvements in material flow. However, there are still priority sites that are constraining output and the company is working with suppliers to drive progress. They have seen higher engine output and stability in July compared to April and are using FLIGHT DECK to improve operations. The company has also made progress in improving turnaround time for LEAP shop visits.

The company has seen a 9% increase in LEAP internal shop visits and plans to invest $1 billion in MRO facilities to support the expected growth in shop visits. They have also acquired a dedicated LEAP test cell to increase shop visit output. In the quarter, GE Aerospace saw significant profit and free cash flow growth, with strong demand and orders up 18%. Operating profit and margins also increased significantly, and adjusted EPS was up more than 60%. Free cash flow was up nearly 20% and the company has raised their full-year profit and cash guidance.

The company has seen continued profit and free cash flow growth, and plans to return $25 billion to shareholders. The CES segment has also seen strong performance, with air traffic and passenger departures expected to be up high-single digits. The segment's second quarter results showed significant orders growth and a 7% increase in revenue, driven by services volume and price. Profit and margins also expanded, despite lower engine shipments and increased investments. Overall, the first half of the year has been strong for the CES segment.

DPT, the defense sector of the company, is expected to grow with U.S. defense spending and international orders. The company recently achieved a milestone in delivering engines for the U.S. Army's Improved Turbine Engine Program. Orders were down 25% due to timing, but revenue grew 1%. Engine deliveries were down, but pricing and services grew. Profit was up over 70% and margins expanded due to higher output, favorable product mix, and productivity. DPT delivered high single-digit revenue growth and significant operating profit improvement in the first half of the year. Corporate costs were down nearly 40% year-over-year.

The company has made improvements to their cost structure and eliminated wind-down costs, resulting in an $80 million improvement. They have also completed the sale of Electric Insurance and reached an agreement to sell their licensing business and exit a block of their life and health insurance business. These actions will result in proceeds of roughly $700 million. The company is raising their profit and cash guidance, but reducing their revenue guidance due to lower engine output expectations. They expect CES equipment revenue to be up high single to low-double digits, with services growing mid-teens. Operating profit is expected to be in the range of $6.5 billion to $6.8 billion, primarily from CES. DPT profit guidance remains unchanged, and corporate costs and intercompany eliminations are expected to be below $900 million.

GE Aerospace is raising its adjusted EPS guidance and free cash flow guidance due to higher profit growth. They expect significant revenue, profit, and free cash flow growth in 2024. They have sustained competitive advantages and are focused on delivering unmatched reliability and durability for their customers. With their expertise and innovation, they aim to deliver breakthrough technologies in both commercial and defense sectors. They expect to grow operating profit to $10 million in 2028 and generate free cash flow in excess of net income. They are making progress in their strategic priorities and are focused on sustainability and innovation.

In this paragraph, Blaire Shoor, the operator, asks analysts to limit their questions to allow more people to participate. Robert Spingarn from Melius Research asks a question about the slower ramp on the narrowbody programs and the durability issues on the geared turbofan. Lawrence Culp, CEO, and Rahul Ghai, CFO, both respond by discussing the importance of the CFM56 engine in the industry and how it will continue to have a longer life in many fleets, leading to a positive impact on the aftermarket. They also mention that the peak shop visit previously projected for 2025 may be pushed back due to these dynamics.

The company expects shop visits to plateau at 25 for a few years before declining. They are seeing an increase in shop visits and extended leases for the platform. The company is working to solve issues with 15 supplier sites that have caused delays in parts, and their collaborative approach is yielding results with two-thirds of the sites showing strong improvement.

The speaker discusses the impact of their company's performance in the second quarter and the need for everyone to contribute in order to meet their goals. They mention the positive response from suppliers and the challenges of a multiyear ramp. The questioner asks about the impressive margins in the CES sector, and the speaker attributes it to improved core service margins despite weak OE volume. They are optimistic about the second half.

The service revenue recovered as expected and the overall services growth was in line with projections. The drop-through from services was strong due to time and material work and heavier work scopes. This, along with pricing and customer mix, helped increase services profit. In equipment, engine shipments were lower, but this was offset by reduced spare engine deliveries and higher investments. Overall, OE profit was flat. The company has raised profit expectations for the full year due to favorable services growth and lowered OE revenue output. Despite being the first year of 9x shipments, CES margins will remain flat. In the quarter, there were lower LEAP shipments.

Lawrence Culp, CEO of General Electric, explains that while deliveries were lower than expected in the previous quarter, there is a timing dynamic involved in converting inputs into engines for delivery. He also mentions that April was challenging and May did not see the expected recovery. However, there has been a net improvement in July and the company is focused on delivering more and more reliably. The outlook for LEAP deliveries has been adjusted for the year, but the company is confident in their ability to increase output and meet their goals by the end of the year.

Rahul Ghai and Lawrence Culp discuss the company's projected growth for the second half of the year. They expect similar year-over-year growth in the first and second half, with higher growth in the fourth quarter due to ramping services and OE. However, third quarter margins may be flat due to a strong 3Q last year. The company has had a better start to the third quarter, with higher engine shipments in July compared to April.

The speaker discusses the improvement in material inputs for suppliers in the third quarter and the encouraging start to July. They also mention the absorption of inventory in the guidance and their strategy for working with suppliers who are at different levels of production. The pandemic has presented challenges for the industry, with many suppliers being dialed down to almost zero.

The company is carrying more inventory than desired in order to avoid turning down suppliers who are performing well. This is seen as an investment in maintaining a predictable supply flow. Inventory has grown significantly in the first half of the year, causing a headwind, but the company expects growth to slow in the second half. Despite this, cash growth has remained strong.

Rahul Ghai, Lawrence Culp, and Scott Deuschle are discussing the remaining supplier sites that are causing bottlenecks for GE Aerospace. Culp emphasizes the need for collaboration and problem-solving in order to improve the situation. He acknowledges that progress has been made, but more work needs to be done in the second half of the year. Robert Stallard from Vertical Research also joins the call.

During a recent conference call, GE's CEO and CFO expressed confidence in the company's ability to deliver new engines in the second half of the year. They also mentioned that they are focused on managing their own operations and not on the forecasts or performance of their customers and supply chain. The company's services orders are growing faster than revenue, which is attributed to strong orders for services and a good book-to-bill ratio. Overall, the team is focused on their work and there is momentum in the services side of the business.

In the second half of the year, the company expects higher growth in services, particularly in shop visits and spare parts. This is consistent with their long-term outlook for strong services growth. Despite recent airline profit warnings, the company has not seen any impact on their business and remains watchful. Services orders were up 36% in the second quarter, indicating positive feedback from customers.

The speaker discusses the RISE engine and its development milestones, as well as customer interest and acceptance. The RISE engine is part of a larger umbrella of technology programs, including the Open Fan, compact core, and hybrid electric work. The speaker has attended three air shows with the RISE engine and notes that customer interest continues to grow.

The speaker discusses the progress and challenges of the Open Fan blade technology, which has been well received by airline CEOs in Europe due to its potential for sustainability. They also mention the ongoing work with NASA and Airbus to test the technology, but acknowledge that it is still in the early stages of development. The speaker then moves on to address a question about the breakeven timing for the LEAP technology, stating that it has not shifted despite lower volumes and resource allocation towards supplier issues.

The speaker discusses the progress of the LEAP program, stating that it is expected to be profitable in 2024 and break even in 2025. He mentions that LEAP services are performing better than expected and that the program is on track to match the performance of the CFM56 by the end of the year. He also mentions that the HPT LEAP testing is going well and that the program should break even next year. The speaker concludes by emphasizing the team's commitment to safety and innovation in the aerospace industry.

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