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General Electric Company (GE) Q3 2023 Earnings Call Transcript

Start Time: 07:30

End Time: 08:23

General Electric Company (GE)

Q3 2023 Earnings Conference Call

Company Participants

Larry Culp - Chairman and CEO

Rahul Ghai - GE Aerospace CFO

Steven Winoker - VP, IR

Conference Call Participants

Scott Deuschle - Deutsche Bank

Nigel Coe - Wolfe Research

Seth Seifman - JPMorgan

Julian Mitchell - Barclays

Sheila Kahyaoglu - Jefferies

Deane Dray - RBC Capital Markets

Andrew Kaplowitz - Citigroup

Jeffrey Sprague - Vertical Research Partners

Andrew Obin - Bank of America

Joseph Ritchie - Goldman Sachs

Christopher Snyder - UBS

Presentation

Operator

Good day, ladies and gentlemen, and welcome to General Electric Third Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. My name is Liz and I will be your conference coordinator today. [Operator Instructions]. As a reminder, this conference is being recorded.

I would now like to turn the program over to your host for today's conference, Steve Winoker, Vice President of Investor Relations. Please proceed.

Steven Winoker

Thanks, Liz. Welcome to GE's third quarter 2023 earnings call. I'm joined by Chairman and CEO, Larry Culp; and CFO, Rahul Ghai. Some of the statements we're making are forward-looking and based on our best view of the world and our businesses as we see them today. As described in our SEC filings and on our Web site, those elements may change as the world changes.

Over to Larry.

Larry Culp

Steve, thank you and good morning, everyone. Before we start, I want to reiterate that the GE team stands firmly with our employees, customers, and all those impacted by the brutal Hamas attacks on Israel in the subsequent war. Our priority has been the safety of GE employees in the region. We're doing everything possible to support them and their families. Last week, GE announced $0.5 million contribution to help with the humanitarian efforts for the many people in Israel, Gaza and the surrounding areas impacted by these horrific events. Terrorism has no place in our society. And like so many, I'm devastated by the loss of lives, violence and suffering of innocent people.

Turning to the quarter, GE delivered a very strong performance and we're raising full year guidance again. GE Aerospace continues to experience rapid growth, driven by robust demand and solid execution largely in commercial engines and services, another significant quarter for the team. Our fleet of 41,000 commercial engines and 26,000 rotorcraft and combat engines continues to expand as we work to define the future of flight.

Today, we're navigating a still challenging supply chain environment to deliver for and support our customers. Year-to-date, commercial engine deliveries are up 30%. Across GE and Safran’s MRO shops this quarter, we've approved LEAP quick turn shop visits over 30% year-over-year and sequentially. Tomorrow we're building our backlog and sales pipeline during unprecedented industry growth. Recently, Air Canada ordered 36 GEnx-1B engines plus four spares building on GEnx’s rich history as the fastest selling high thrust engine with over 50 million flight hours.

For the future, we're investing in R&D and developing next generation technologies. For example, we're advancing full system testing for our hybrid electric systems at our electric power center in Ohio. We're also collaborating with industry partners in NASA on an eco demonstrator program to measure sustainable aviation fuel impact on the environment, particularly high-altitude emissions.

And our growth opportunities extend beyond commercial. In defense, we're pleased the U.S. Army has accepted the first two T901 flight test engines for the future attack reconnaissance aircraft prototypes. The T901 will also upgrade the U.S. Army's Apache and Blackhawk helicopters, providing 50% more power, reduce lifecycle costs and lower fuel consumption. And we've been selected for development work on the cockpit voice and flight data recorder systems for the future Long-Range Assault Aircraft program.

Next generation programs like these demonstrate how GE’s rotorcraft programs enable the military and our allies to take on more challenging missions today and in the future. And we're pleased to see Congress recognizing this important work by including funding for advanced engine development like the XA 100 in both the House and Senate fiscal year '24 defense appropriation bills.

However, even with these strong results, we're far from satisfied. Through our lean transformation, we're making real progress, improving flow and eliminating waste. For example, our team in Pune, India has increased output of LEAP high pressure turbine manifolds by 3x. But we need to do more, as do our suppliers, given the pace of demand for both aftermarket services and new engine deliveries.

There are pockets of improvement now, material input increased double digit sequentially supporting spare parts delivery, which was up significantly year-over-year. We're working within our own plants and in partnership with our suppliers to deliver sequential improvements and output and turnaround times day-by-day, week-by-week.

Over to GE Vernova where performance is strengthening pre-spin at both renewable energy and power. Customers continue to invest in the energy transition, driving meaningful demand for our products and services.

Grid and now Onshore Wind were both profitable this quarter and we expect improved performance from here. Grid customers are increasing their infrastructure investments globally to connect renewables and improve reliability. Year-to-date, orders remain strong and more than 3x revenue and with higher margins, which will support profitable growth through the decade. We've also increased selectivity, streamline cost and rationalized our industrial footprint, tracking towards full year profitability at grid.

I really liked the way the grid team is using lean to drive this turnaround and to deliver profitable growth. For example, across power transmissions, 14 sites globally, we've reduced lead time by roughly 15% year-to-date, and we're targeting a 20% reduction by year end.

Now with onshore. Our strategy to focus on fewer markets, pivoting more toward North America, where GE Vernova is the market leader is working. And we're relying more on our workhorse products, now representing 70% of equipment volume this quarter. These shifts are translating to 700 basis points of higher margins in backlog this year. We’re still driving cost out, fewer layers, reducing headcount and empowering leaders closest to the operators.

Finally, we're improving fleet reliability. We're now halfway through our enhancement program in the field and expect to be roughly 60% complete by year end. As expected, Offshore Wind remains difficult this year, with losses of roughly $1 billion in 2023. Next year we expect offshore will have similar losses, but substantially improved cash performance.

So it's a tough $6 billion backlog that we're working our way through, which we expect to largely complete over the next two or three years. Meanwhile, we're making operational progress with rising availability on the 800 installed megawatts of our 6 megawatt platform. Electricity is now being produced at Dogger Bank, and we recently had the installation of our first Haliade-X turbans at Vineyard Wind. ...

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