Q2 2023 General Electric Co Earnings Call

Operator: Good day, ladies and gentlemen, and welcome to the General Electric second 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].

Speaker 1: At this time, all participants are in a listen-only mode. My name is Liz and I will be your conference coordinator today. If you experience issues with the webcast slides refreshing or there appears to be delays in the slide advancement, please hit F5 on your keyboard to refresh.

Speaker 1: My name is Liz and I will be your conference coordinator today. If you experience issues with the webcast slides refreshing or there appears to be delays in the slide advancement, please hit F5 on your keyboard to refresh.

Speaker 1: If you experience issues with the webcast slides refreshing or there appears to be delays in the slide advancement, please hit F5 on your keyboard to refresh.

Operator: 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 second quarter '23 earnings call. I'm joined by chairman and CEO, Larry Culp; and CFO, Carolina Dybeck Happe. GE Aerospace CFO, Rahul Ghai, who will also assume the role of GE CFO in September, will join us for Q&A.

Steven Winoker: 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 website, those elements may change as the world changes. Over to Larry.

Larry Culp: Steve, thank you, and good morning, everyone. The GE team turned in another strong quarter with double-digit growth in orders, revenue, operating profit, and cash, supported by services strength, robust market demand, and the lean transformation within our more focused businesses. In the first half alone, earnings have now surpassed our full year 2022 results. GE Aerospace is growing rapidly as we execute on the ramp for our customers, and GE Vernova is strengthening pre-spin, with record orders and improving profitability at renewable energy and continued margin expansion at power.

Speaker 3: The GE team turned in another strong quarter with double-digit growth in orders, revenue, operating profit, and cash. supported by services strength, robust market demand, and the lean transformation within our more focused businesses. In the first half alone, earnings have now surpassed our full year 2022 results. GE Aerospace is growing rapidly as we execute on the ramp for our customers, and GE Vernova is strengthening pre-spin with record orders and improving profitability at renewable energy and continued margin expansion at power.

Speaker 3: supported by services strength, robust market demand, and the lean transformation within our more focused businesses. In the first half alone, earnings have now surpassed our full year 2022 results. GE Aerospace is growing rapidly as we execute on the ramp for our customers, and GE Vernova is strengthening pre-spin with record orders and improving profitability at renewable energy and continued margin expansion at power.

Speaker 3: In the first half alone, earnings have now surpassed our full year 2022 results. GE Aerospace is growing rapidly as we execute on the ramp for our customers, and GE Vernova is strengthening pre-spin with record orders and improving profitability at renewable energy and continued margin expansion at power.

Speaker 3: GE Aerospace is growing rapidly as we execute on the ramp for our customers, and GE Vernova is strengthening pre-spin with record orders and improving profitability at renewable energy and continued margin expansion at power.

Larry Culp: Based largely on year-to-date performance and expectations for continued strength in the second half, we're raising full year guidance today. Big picture, there's a clear sense of progress, passion, and purpose within our businesses. This was particularly evident to me when I was in France last month. At the Paris Air Show, GE Aerospace shared our bold vision to define flight for today, tomorrow, and the future during meetings with customers, suppliers, and investors.

Speaker 3: Big picture, there's a clear sense of progress, passion, and purpose within our businesses.

Speaker 3: This was particularly evident to me when I was in France last month.

Speaker 3: At the Paris Air Show, GE Aerospace shared our bold vision to define flight for today, tomorrow, and the future during meetings with customers, suppliers, and investors.

Larry Culp: CFM's RISE demonstrator program drew a lot of excitement as it aims to reduce fuel consumption and CO2 emissions by at least 20% compared to today's most efficient engines. I also saw our GE Vernova team for our onshore wind and grid operating reviews, where we discussed opportunities and challenges with equal candor and transparency.

Speaker 3: I also saw our GE Vernova team for our onshore wind and grid operating reviews, where we discussed opportunities and challenges with equal candor and transparency.

Larry Culp: We focus on how we grow these businesses profitably by applying real lean at the point of impact to drive results. We're also seeing lean's impact in our offshore wind facility in Saint-Nazaire, where the team has reduced cycle times to assemble nacelle roofs by nearly 50% through multiple Kaizens. So, while it's still early, I'm encouraged by examples like this across GE Vernova. Day in, day out, we're increasingly operating as GE Aerospace and GE Vernova, two industry leaders with large install bases, where services represent about 70% of GE Aerospace revenue and about half of GE Vernova revenue. In addition to attractive economics, services keep us close to our customers. We understand the issues they're wrestling with and how our technology is performing, which shapes our future roadmaps. And with our businesses executing, we're advancing toward their launches as independent investment-grade companies next year.

Speaker 3: We're also seeing leans impact in our offshore wind facility in Sendazere, where the team has reduced cycle times to assemble the cell roofs by nearly 50% through multiple chisels. So while it's still early, I'm encouraged by examples like this across GE Vernova. Day in, day out, we're increasingly operating. services keep us close to our customers. We understand the issues they're wrestling with. and how our technology is performing, which shapes our future roadmaps. And with our businesses executing, we're advancing towards their launches as independent investment-grade companies next year.

Speaker 3: services keep us close to our customers. We understand the issues they're wrestling with. and how our technology is performing, which shapes our future roadmaps. And with our businesses executing, we're advancing towards their launches as independent investment-grade companies next year.

Speaker 3: and how our technology is performing, which shapes our future roadmaps. And with our businesses executing, we're advancing towards their launches as independent investment-grade companies next year.

Speaker 3: And with our businesses executing, we're advancing towards their launches as independent investment-grade companies next year.

Larry Culp: When I reflect on how far we've come, it always starts with the team. So, a big thank you to the entire global GE team. There's a lot to be excited about as we look forward to the rest of this year. Before I turn it over to Carolina to take you through our results in detail, let me take a moment to welcome Rahul to his additional role as GE CFO this fall. 

Speaker 3: So a big thank you to the entire global GE team. There's a lot to be excited about as we look forward to the rest of this year.

Speaker 3: Before I turn it over to Carolina to take you through our results in detail, let me take a moment to welcome Rahul to his additional role as GE CFO this fall. 

Larry Culp: Since joining GE Aerospace last year, he has quickly become an impactful and influential member of our GE Aerospace leadership team. And so, with our final spin approaching sometime in early '24 and Rahul assuming the CFO job September 1st, this is Carolina's last earnings call. She has been a trusted strategic partner through significant deleveraging, improving our operating results, and building the financial foundation for our three independent companies.

Speaker 3: And so with our final spin approaching sometime in early 24, in Rahul assuming the CFO job September . First, this is Karolina's last earnings call. She has been a trusted strategic partner through significant deleveraging, improving our operating results in building the financial foundation for our three independent companies.

Speaker 3: First, this is Karolina's last earnings call. She has been a trusted strategic partner through significant deleveraging, improving our operating results in building the financial foundation for our three independent companies.

Speaker 3: She has been a trusted strategic partner through significant deleveraging, improving our operating results in building the financial foundation for our three independent companies.

Larry Culp: We're deeply grateful for her many contributions. So, on behalf of the entire GE team and for me personally, Carolina, thank you.

Speaker 3: So on behalf of the entire GE team and for me personally, Carolina, thank you.

Carolina Happe: Thanks, Larry. It's truly an honor to be part of this ambitious transformation, and I'm incredibly proud of the work this team has done to build lasting value. And a special thank you to our finance and DT teams for their extraordinary efforts. 

Carolina Happe: Now, turning to Slide 3, which I'll speak to on an organic basis. In the second quarter, we delivered double-digit growth across all headline metrics. Orders increased 58%, up in all segments. Equipment was up significantly, led by renewables. This includes two large HVDC projects with tenant at grid and higher margin orders at U.S. onshore wind. Aerospace, also up with solid defense engine orders. 

Speaker 4: In the second quarter, we delivered double digit growth across all headline metrics. Orders increased 58%, up in all segments. Equipment was up significantly, led by renewables. This includes two large HVDC projects with tenors at grid and higher margin orders at U.S. onshore wind.

Speaker 4: Orders increased 58%, up in all segments. Equipment was up significantly, led by renewables. This includes two large HVDC projects with tenors at grid and higher margin orders at U.S. onshore wind.

Speaker 4: This includes two large HVDC projects with tenors at grid and higher margin orders at U.S. onshore wind.

Speaker 4: onshore wind. Aerospace, also up with solid defense engine orders. 

Carolina Happe: Services was up 21% with growth in all segments, largely driven by commercial aerospace's strengths. Revenue increased 19% with both equipment and services up.

Speaker 4: largely driven by commercial aerospace strengths. Revenue increased 19% with both equipment and services up.

Speaker 4: Revenue increased 19% with both equipment and services up.

Carolina Happe: Also here, aerospace led the way as LEAP engine deliveries nearly doubled and services grew. Renewables also grew, led by onshore wind and grid, with improved pricing. Adjusted margin expanded to 160 basis points driven, by volume, price, and productivity. This was partially offset by mixed inflation and investment.

Speaker 4: Renewables also grew, led by onshore wind and grid, with improved pricing. Adjusted margin expanded 160 basis points driven by volume, price and productivity. Adjusted margin expanded 160 basis points driven by volume, price and productivity. This was partially offset by mixed inflation and investments.

Speaker 4: Adjusted margin expanded 160 basis points driven by volume, price and productivity. Adjusted margin expanded 160 basis points driven by volume, price and productivity. This was partially offset by mixed inflation and investments.

Speaker 4: Adjusted margin expanded 160 basis points driven by volume, price and productivity. This was partially offset by mixed inflation and investments.

Carolina Happe: Taken together, adjusted EPS was $0.68, nearly double what we delivered last year, driven by profit growth in all segments and meaningful deleveraging. Free cash flow was $415 million, more than double what we delivered last year, driven by earnings growth.

Speaker 4: nearly double what we delivered last year, driven by profit growth in all segments and meaningfully leveraging.

Speaker 4: Free cash flow was $415 million, more than double what we delivered last year, driven by earnings growth.

Carolina Happe: Looking at the flows, we reduced working capital from the first quarter. Given the sequential revenue growth and preparation for large second-half deliveries, receivables, and inventory reduce of cash. This was more than offset by progress payments and contract assets with utilization-driven billing.

Carolina Happe: At both GE Aerospace and GE Vernova, we're implementing weekly cash management and already seeing some linear progress. Importantly, our first-half free cash flow underscores these efforts, up 1.5 billion year over year. This includes $500,000 lower working capital than in 2022.

Speaker 4: importantly. Our first half free cash flow underscores this effort, up one and a half billion year over year. This includes half a billion of dollars, lower working capital than in 2022.

Speaker 4: Our first half free cash flow underscores this effort, up one and a half billion year over year. This includes half a billion of dollars, lower working capital than in 2022.

Carolina Happe: Now, a moment on corporate. Adjusted costs were up year over year, primarily driven by nonrepeat of 2022 timing benefits. We're preparing for stand-alone cost structures with functional head count down 10% year to date. And for the year, we continue to expect expenses in the 600 million range.

Speaker 4: We are preparing for standalone cost structures with a financial headcount down 10% year-to-date. And for the year, we continue to expect expenses in the 600 million range.

Carolina Happe: We also continue to simplify and strengthen the business foundations prior to the launches of GE Aerospace and GE Vernova. This quarter, we partially monetized our GE Healthcare stake. And today, we announced that we will call the remainder of the outstanding GE preferred stock in September, further simplifying our balance sheets and reducing financing costs. And we took action to reduce our exposure to legacy liabilities.

Speaker 4: This quarter we partially monetized our GE healthcare state and today we announced that we will call the remainder of the outstanding GE preferred stock in September , further simplifying our balances and reducing financing costs. And we took action to reduce our exposure to legacy liabilities.

Speaker 4: And we took action to reduce our exposure to legacy liabilities.

Carolina Happe: As we've disclosed for some time, our runoff Polish mortgage portfolio, Bank BPH has been subject to ongoing litigation along with other Polish banks. We approved the adoption of a settlement program. And associated with that, we recorded a charge of $1 billion in discontinued operations. Importantly, no incremental cash contributions from GE are required in connection with the charge as the current cash balances at Bank BPH are adequate.

Speaker 4: We approved the adoption of a settlement program. And associated with that, we recorded a charge of $1 billion in discontinued operations. Importantly, no incremental cash contributions from GE are required in connection with the charge as the current cash balances at Bank BPH are adequate.

Carolina Happe: Overall, we're very pleased with our spin progress and first half, which includes adjusted EPS up more than three times compared to a year ago. So, given the strength of GE Aerospace and the improvement at GE Vernova, for the full year, we're now expecting revenue growth in the low double-digit range, up from high single digits; $2.10 to $2.30 of adjusted EPS, up from $1.70 to $2, and that includes $4.7 billion to $5.1 billion of operating profit. And finally, we now guide for a range of $4.1 billion to $4.6 billion for free cash flow, up from $3.6 billion to $4.2 billion. And on that happy note, back to you, Larry.

Speaker 4: So given the strength of GE Aerospace and the improvement at GE Vernova for the full year, we're now expecting revenue growth in the low double digit range up from high single digit. $2.10 to $2.30 of adjusted DPS, up from $1.70 to $2.00. that includes 4.7 to 5.1 billion of operating profit. And finally, we now guide for a range of 4.1 to 4.6 billion for free cash flow, up from 3.6 to 4.2 billion. And on that happy note, back to you, Larry.

Speaker 4: $2.10 to $2.30 of adjusted DPS, up from $1.70 to $2.00. that includes 4.7 to 5.1 billion of operating profit. And finally, we now guide for a range of 4.1 to 4.6 billion for free cash flow, up from 3.6 to 4.2 billion. And on that happy note, back to you, Larry.

Speaker 4: that includes 4.7 to 5.1 billion of operating profit. And finally, we now guide for a range of 4.1 to 4.6 billion for free cash flow, up from 3.6 to 4.2 billion. And on that happy note, back to you, Larry.

Speaker 4: And finally, we now guide for a range of 4.1 to 4.6 billion for free cash flow, up from 3.6 to 4.2 billion. And on that happy note, back to you, Larry.

Speaker 4: And on that happy note, back to you, Larry.

Larry Culp: Carolina, thank you. As many of you saw at the Paris Air Show, GE Aerospace showcased industry-leading solutions for both commercial and defense across propulsion, systems, and services. Our teams are delivering for customers both in services and by growing our large young fleet of 41,000 commercial engines and 26,000 rotorcraft and combat engines. Today, we're partnering with airframers, airlines, and lessors to drive stability and predictability as they ramp.

Speaker 3: GE Aerospace Showcase Industry Leading Solutions for both commercial and defense across propulsion, systems and services. Our teams are delivering for customers both in services and by growing our large young fleet of 41,000 commercial engines and 26,000 rotorcraft and combat engines. Today, we're partnering with Airframers, Airlines, and LaSores to drive stability and predictability as they ramp.

Speaker 3: Our teams are delivering for customers both in services and by growing our large young fleet of 41,000 commercial engines and 26,000 rotorcraft and combat engines. Today, we're partnering with Airframers, Airlines, and LaSores to drive stability and predictability as they ramp.

Speaker 3: Today, we're partnering with Airframers, Airlines, and LaSores to drive stability and predictability as they ramp.

Larry Culp: For tomorrow, we're growing and optimizing our next generation of engines. This quarter, for example, our defense team signed a historic MOU with Hindustan Aeronautics Limited to produce jet fighters -- jet fighter engines for the Indian Air Force, and while our commercial business secured major deals with Riyadh Air, Jet2, and more. For the future, we're developing next-generation technologies like RISE, hybrid electrics, and sustainable aviation fuels. As a result of our efforts to embed lean and empower those closest to the action, I'm seeing greater intensity, discipline, and focus. For example, as we discussed in June, while supply chain and inflation challenges persist, we're using a lean tool called Plan for Every Part to implement pull and improve delivery. Sustaining lean efforts like this help us increase sequential engine deliveries by 35% in the second quarter, including a 40% improvement in T700 from a 25% reduction in lead times. Looking at the market, departures have almost returned to pre-COVID levels. This rapid growth was evident in our quarterly results.

Speaker 3: This quarter, for example, our defense team signed a historic MOU with Hindustan Aeronautics Limited to produce jet fighter engines for the Indian Air Force, and while our commercial business secured major deals with Riyadh Air, Jet 2, and more. For the future, we're developing next generation technologies like RISE, and the Indian Air:(

Speaker 3: For example, as we discussed in June, while supply chain and inflation challenges persist, we're using a lean tool called Plan for Every Part to implement pull and improve delivery. Sustaining lean efforts like this help us increase sequential engine deliveries by 35% in the second quarter, including a 40% improvement in T700 from a 25% reduction in lead times.

Speaker 3: We're using a lean tool called Plan for Every Part to implement pull and improve delivery. Sustaining lean efforts like this help this increase sequential engine deliveries by 35% in the second quarter, including a 40% improvement in T700. from a 25% reduction in lead times.

Speaker 3: from a 25% reduction in lead times.

Speaker 3: Looking at the market, departures have almost returned to pre-COVID levels. This rapid growth was evident in our quarterly results.

Larry Culp: Orders were up 37% with strength in commercial services and defense. Revenue was up 28% with equipment growing at double the services rate. Profit improved close to $350 million or nearly 30%. Margins contracted 30 basis points organically.

Speaker 3: Revenue was up 28% with equipment growing at double the services rate. Profit improved close to $350 million or nearly 30%. Margins contracted 30 basis points organically.

Speaker 3: Profit improved close to $350 million or nearly 30%. Margins contracted 30 basis points organically.

Larry Culp: Volume, pricing, net of inflation, productivity were offset by unfavorable mix, increased investments, and the nonrepeated positive contract margin adjustments last year. Once again, commercial engines and services was particularly robust with 32% revenue growth. Commercial engines revenue grew 35% with LEAP deliveries up over 80% year over year and over 10% sequentially. We're on track for 1,700 LEAP deliveries this year.

Speaker 3: Once again, Commercial Engines and Services was particularly robust with 32% revenue growth. Commercial engines revenue grew 35% with LEAP deliveries up over 80% year-over-year and over 10% sequentially. We're on track for 1,700 LEAP deliveries this year.

Speaker 3: Commercial engines revenue grew 35% with LEAP deliveries up over 80% year-over-year and over 10% sequentially. We're on track for 1,700 LEAP deliveries this year.

Larry Culp: As expected, the LEAP spare engine deliveries ratio was higher than 2022, but we expect this to normalize in the second half, remaining roughly in line with 2022 for the full year. Commercial services revenue also grew over 30%. Internal shop business increased over 10%, and external spare parts were up over 40%. For the year, we now expect commercial engines revenue to grow mid to high 20s and commercial services to grow above 20%.

Speaker 3: Commercial services revenue also grew over 30%. Internal shop visits increased over 10% and external spare parts were up over 40%. Brand Equality For the year, we now expect commercial engines revenue to grow mid to high 20s. and commercial services to grow above 20%.

Speaker 3: For the year, we now expect commercial engines revenue to grow mid to high 20s. and commercial services to grow above 20%.

Speaker 3: and commercial services to grow above 20%.

Larry Culp: Defense improved this quarter, delivering significant growth. Orders more than doubled. Engine output increased with units up over 70% year over year. Through the first half, we delivered double-digit revenue growth and were on track for at least high single-digit growth this year. Looking ahead, we're constantly innovating here as well. Our XA100 is the only engine tested and ready to ensure the U.S. maintains air superiority this decade. This engine is the most cost-effective option to meet the needs of the U.S. war fighter for decades to come.

Speaker 3: Engine output increased with units up over 70% year over year. Through the first half, we delivered double-digit revenue growth and were on track for at least high single digit growth this year.

Speaker 3: Through the first half, we delivered double-digit revenue growth and were on track for at least high single digit growth this year.

Speaker 3: Looking ahead, we're constantly innovating here as well. Our XA100 is the only engine tested and ready to ensure the U.S. maintains air superiority this decade. This engine is the most cost-effective option to meet the needs of the U.S. war fighter for decades to come.

Speaker 3: This engine is the most cost-effective option to meet the needs of the US Warfighter for decades to come.

Larry Culp: We're pleased the House has recognized the importance of this program by including funding in the National Defense Authorization Act and in the House Appropriations Committee defense bill. We'll be closely watching the Senate as it considers legislation this week. 

Larry Culp: Based on our first-half strength, we're raising revenue growth to high teens to 20% and operating profit to $5.6 billion to $5.9 billion, up roughly $1 billion year over year at the midpoint. And we expect free cash flow to be even stronger year over year, in line with our increased profit expectations. Moving to GE Vernova, we continue to see long-term growth tailwinds, driven by the need for more sustainable, affordable, resilient energy, along with energy security. And we're encouraged by the team's progress as they use lean to strengthen operations, driving toward a significant inflection in 2024. This quarter, renewables demonstrated continued improvement.

Speaker 3: And we expect free cash flow to be even stronger year over year, in line with our increased profit expectations. Moving to GE Vernova, we continue to see long-term growth tailwinds, driven by the need for more sustainable, affordable, resilient energy, along with energy security. And we're encouraged by the team's progress as they use lean to strengthen operations, driving toward a significant inflection in 2024. This quarter, renewables demonstrated continued improvement.

Speaker 3: Moving to GE Vernova. We continue to see long-term growth tailwinds driven by the need for more sustainable, affordable, resilient energy, along with energy security. and were encouraged by the team's progress as they used lean to strengthen operations, driving toward a significant inflection. In 2024. This quarter, renewables demonstrated continued improvement.

Speaker 3: We continue to see long-term growth tailwinds driven by the need for more sustainable, affordable, resilient energy, along with energy security. and were encouraged by the team's progress as they used lean to strengthen operations, driving toward a significant inflection. In 2024. This quarter, renewables demonstrated continued improvement.

Speaker 3: and were encouraged by the team's progress as they used lean to strengthen operations, driving toward a significant inflection. In 2024. This quarter, renewables demonstrated continued improvement.

Speaker 3: In 2024. This quarter, renewables demonstrated continued improvement.

Speaker 3: This quarter, renewables demonstrated continued improvement.

Larry Culp: Market demand broke record orders, led by grid with two more large HVDC projects. Even excluding these projects, grid orders were up over 40%. As expected, we also recognized a large U.S. offshore order, which was included in our backlog forecast at our March investor conference.

Speaker 3: Even excluding these projects, RID orders were up over 40%.

Speaker 3: As expected, we also recognized a large US offshore order, which was included in our backlog forecast at our March investor conference.

Larry Culp: Onshore wind was strong again, led by North American equipment growing more than threefold. We serve many of North America's largest developers and the IRA incentives are helping grow orders significantly this year. Revenue grew 27% organically, driven by higher equipment deliveries across both wind and grid. And offshore revenue tripled year over year as we increase in the cell production with June the highest month to date. Importantly, profit improved year over year and sequentially for the second consecutive quarter, driven by price and productivity improvements primarily at onshore and grid. Going deeper into each business. At onshore, the progress continued.

Speaker 3: Revenue grew 27% organically, driven by higher equipment deliveries across both wind and grid.

Speaker 3: Importantly, profit improved year over year and sequentially for the second consecutive quarter, driven by price and productivity improvements primarily at onshore and grid. Going deeper into each business. At onshore, the progress continued.

Speaker 3: and ensure the progress continues.

Larry Culp: First, we're seeing the impact of enhancing our underwriting rigor and focusing on select markets with fewer product offerings. Second, we're driving price to manage inflation. As we've seen the past four quarters, equipment margins on new orders are coming in higher than current margins, especially here in the U.S. This will help drive improved profitability going forward.

Speaker 3: enhancing our underwriting rigor and focusing on select markets with fewer product offerings. Second, we're driving price.

Speaker 3: to manage inflation, as we've seen the past four quarters equipment margins on new orders are coming in higher than current margins, especially here in the US.

Speaker 3: This will help drive improved profitability going forward.

Larry Culp: Next, we're improving reliability through our fleet enhancement program. And as of July, we're almost 30% complete, and we expect to be more than halfway done by year-end.

Larry Culp: Our cost rationalization continues with onshore head count down roughly 30% year over year. At offshore, we're improving on the Haliade-X learning curve and reducing cycle times to deliver for our customers as we work through our initial projects. And finally, in grid, the top line grew double digits in all businesses with significant margin expansion from volume, price, and productivity.

Speaker 3: At all short, we're improving on the Holly-Idex learning curve and reducing cycle times to deliver for our customers as we work through our initial projects.

Speaker 3: And finally, in grid, the top-line grew double digits in all businesses with significant margin expansion from volume, price, and productivity.

Larry Culp: Grid was profitable this quarter and remains on track to turn profitable for the full year. Looking ahead, we're raising our full year renewables revenue growth forecast to high single digits. And we're expecting some sequential profit improvement in the second half, driven by onshore wind and grid.

Speaker 3: Looking ahead, we're raising our full year renewables revenue growth forecast to high single digits. And we're expecting some sequential profit improvement in the second half driven by all in shorewind and grit. And we're expecting some sequential profit improvement in the second half driven by all in shorewind and grit.

Speaker 3: And we're expecting some sequential profit improvement in the second half driven by all in shorewind and grit. And we're expecting some sequential profit improvement in the second half driven by all in shorewind and grit.

Larry Culp: Turning to power. Power continues to deliver solid results in reliable earnings and cash flow, providing critical support for future growth at GE Vernova. And at the same time, our multiyear decarbonization efforts continue. Just this month, the province of Ontario announced we'll work together on the planning and licensing process for three more potential new small modular reactors there using our BWRX-300 design.

Speaker 3: And at the same time, our multiyear decarbonization efforts continue. Just this month, the province of Ontario announced we'll work together on the planning and licensing process for three more potential new small modular reactors there using our BWRX-300 design.

Speaker 3: Just this month, the province of Ontario announced we'll work together on the planning and licensing process for three more potential new small modular reactors there.

Larry Culp: Looking at the market, GE gas turbine utilization grew at a low single-digit rate this quarter. Orders grew high single digits with strength from gas power transactional services. Revenue declined slightly largely due to aeroderivative shipment timing.

Speaker 3: Revenue declined slightly, largely due to arrow derivative shipment timing.

Larry Culp: Services, however, continued to grow and we h ad higher HA deliveries. This provides stable baseload power to the grid now and generates future services growth.

Larry Culp: Power delivered continued profit growth and margin expansion. Price, productivity, and higher contractual outage volume on heavy duty units more than offset inflation. Overall, in the first half, power revenue grew mid single digits organically, and margins expanded, led by gas power services.

Larry Culp: For the year, we continue to expect low single-digit revenue growth. And given our second quarter performance, we now expect power's profit to be even better versus 2022.

Speaker 3: versus 2022.

Larry Culp: Taken together, for GE Vernova, we're raising our revenue forecast to mid single-digit growth. We're also improving our profit guidance, driven by both renewables and power, and now expect a negative $400 million to a negative $100 million this year, an improvement of almost $800 million year over year at the midpoint. We continue to expect flat to slightly improved free cash flow.

Speaker 3: We're also improving our profit guidance driven by both renewables and power. and now expect a negative $400 million to a negative $100 million this year. an improvement of almost $800 million year over year at the midpoint. We continue to expect flat to slightly improve free cash flow.

Speaker 3: and now expect a negative $400 million to a negative $100 million this year. an improvement of almost $800 million year over year at the midpoint. We continue to expect flat to slightly improve free cash flow.

Speaker 3: an improvement of almost $800 million year over year at the midpoint. We continue to expect flat to slightly improve free cash flow.

Speaker 3: We continue to expect flat to slightly improve free cash flow.

Larry Culp: Overall, we're pleased with our progress and momentum. But, of course, more remains to be done. So, to wrap up, on Slide 7, our businesses delivered a strong half, anchored by missions that matter to our customers and to the world. GE Aerospace, inventing the future of flight; GE Vernova, electrifying and decarbonizing the world. We're excited about where we are and where we're headed. And I'm confident we're well positioned for success as two innovative service-focused market leaders.  Steve,  with  that,  let's  go  to  Q&A. 

Speaker 3: We're pleased with our progress and momentum, but of course, more remains to be done. So to wrap up on slide 7. Our businesses delivered a strong half anchored by missions that matter to our customers and to the world. GE Aerospace inventing the future of flight. GE Vernova electrifying and decarbonizing the world.

Speaker 3: So to wrap up on slide 7. Our businesses delivered a strong half anchored by missions that matter to our customers and to the world. GE Aerospace inventing the future of flight. GE Vernova electrifying and decarbonizing the world.

Speaker 3: Our businesses delivered a strong half anchored by missions that matter to our customers and to the world. GE Aerospace inventing the future of flight. GE Vernova electrifying and decarbonizing the world.

Speaker 3: GE Vernova electrifying and decarbonizing the world.

Speaker 3: We're excited about where we are and where we're headed. And I'm confident we're well positioned for success as two innovative service-focused market leaders.

Speaker 3: And I'm confident we're well positioned for success as two innovative service-focused market leaders.

Steven Winoker: Thanks, Larry. Before we open the line, I'd ask everyone in the queue to consider your fellow analysts and ask one question so we can get to as many people as possible. Liz, please open the line.

Multiple: [Operator instructions] Our first question comes from Sheila Kahyaoglu with Jefferies.  [Sheila Kahyaoglu] Good morning, everyone. Thank you. [Larry Culp] Good morning, Sheila. [Sheila Kahyaoglu] I wanted to ask about aerospace profitability. When we look at year-to-date margins for the first half, aero margins are 18.9, and the full year implied guidance is 18.5.

Sheila Kahyaoglu: So, what are the dynamics of contraction in the second half, given the commentary in the release prior was -- the commentary in your releases, good market strengths, efficiencies are coming through, you've shipped 46% of the LEAPS in H1, slightly ahead of your prior expectation of sequential improvement for the year? So, what happened that margins contract in the second half?

Multiple: [Larry Culp] Sheila, thank you. No, you're spot on. And I think as we referenced, there is largely a mixed dynamic in play as equipment revenues begin to accelerate here vis-a-vis services. But I think that's an excellent question for Rahul to jump in on here. It's one of the reasons we wanted to have him here with us this morning. Rahul? [Rahul Ghai] Yeah, thanks, Larry. Morning, Sheila. So, you know, first, let me just go back to how good the second quarter was, which you referenced. We had 28% organic growth; commercial engines, up more than 50%; services, continuing a really strong run with 30%-plus growth; defense, recovering, as Larry said in his remarks, to be up double digit on revenue growth for the first half. And profit was up more than 30% year over year with margin expansion. And the quarter was better than what we had expected going back all the way to April. 

Speaker 6: to have him here with us this morning. Rahul? Yeah, thanks Larry. Morning Sheila. So you know, first, let me just go back to how good the second quarter was, which you referenced, we had 28% organic growth, commercial engines up more than 50%. Service continuing a really strong run with 30% plus growth, defense recovering, as Larry said in his remarks.

Speaker 6: And profit was up more than 30% year over year with margin expansion. And the quarter was better than what we had expected going back all the way to April. 

Rahul Ghai: But more importantly, as we looked at the quarter, it gave us the confidence to raise the full year. And now profit is up $1 billion for the year at the midpoint of the guide with year-over-year margin expansion. So, that's a positive change as well. And relative to April, we are raising the full year profit by about $250 million at the midpoint of the guide with about $400 million of revenue increase. So, that's about a 60% incremental drop-through. And that is happening even though most of the revenue increase in our guide is coming from commercial OE as we are raising the commercial OE outlook from approximately 20 to mid to high 20s.

Speaker 6: And relative to April, we are raising the full year profit by about $250 million at the midpoint of the guide with about $400 million of revenue increase. So, that's about a 60% incremental drop-through. And that is happening even though most of the revenue increase in our guide is coming from commercial OE as we are raising the commercial OE outlook from approximately 20 to mid to high 20s.

Speaker 6: So that's about a 60% incremental drop through, and that is happening even though most of the revenue increase in our guide is coming from commercial OE as we are raising the commercial OE outlook from approximately 20 to mid to high 20s.

Rahul Ghai: So, the business is doing better on execution, and the improvement in the spare parts growth is helping as well. Now, to your question on the sequential view between first half and second half, the key driver of the sequential growth is commercial from -- is coming from commercial OE, which is up probably 60% between first half and second half.

Rahul Ghai: And that's a reversal of what we saw last year. Last year, most of the first half to second half growth was coming from commercial services. And within commercial OE, there is a spare install dynamic happening as well, with installs being -- as a percentage of total shipments increasing as we get into the second half of the year. So, that's why you're seeing a sequential step-down in margin. But again, it's going to be a really good year. We're going to expand margins and grow profit about $1 billion for the year.

Speaker 6: increasing as we get into the second half of the year. So that's why you're seeing a sequential step down in margin, but again, it's gonna be a really good year. We're gonna expand margins and grow profit about a billion dollars for the year.

Operator: Our next question comes from the line of Andrew Obin with Bank of America.

Multiple: [Andrew Obin] Oh, yes, good morning. [Steve Winoker] Hey, Andrew. [Larry Culp] Good morning, Andrew. [Andrew Obin] You know, I'll stay in the power lane given that there are more illustrious analysts now covering the stock. Offshore, interestingly, you noted favorable year-over-year orders in offshore, and I thought the commentary was that you were not looking at offshore orders. And also, if you could comment on the industry dynamic because it seems that folks are pulling out of offshore as the overall pricing dynamic is not favorable so people are pulling away from contracts. So, more color on offshore would be great. And great quarter. Thank you.

Speaker 7: looking at offshore orders. And also if you could comment on the industry dynamic because it seems that folks are pulling out of offshore as the overall pricing dynamic is not favorable, so people are pulling away from contracts. So more color in offshore would be great and great quarter. Thank you.

Larry Culp: Thank you, Andrew. You're illustrious in our eyes, rest assured. I would say with respect to the offshore order, again, that was something that we knew we had coming. There were just some details that we needed to lock down, and we were pleased to do that. But really, no surprise from what we shared with you out in Cincinnati in March in that regard.

Larry Culp: I think, for us, we're still building out this offshore business. We referenced what we're doing in terms of production in Saint-Nazaire to begin to flow this backlog, this nascent backlog that we have. We certainly have read and have had direct discussions with a number of customers on both sides of the Atlantic as they prepare for the next decade. I think we're optimistic about offshore wind. I know there was some press over the course of the weekend that talked to some of the potential delays. But at the end of the day, as we think about the energy transition, we think about various ways in which, certainly, the coasts are going to be powered with renewable sources. Offshore has a role to play there. And I think what we want to do is build up a business that has a respectable, profitable slice of that market.

Speaker 3: What we're doing in terms of production in San Isar to begin to flow this backlog, this nascent backlog that we have. We certainly have read and have had direct discussions with a number of customers on both sides of the Atlantic. as they prepare for the next decade. I think we're optimistic about offshore wind. I know there was some press over the course of the weekend.

Speaker 3: as they prepare for the next decade. I think we're optimistic about offshore wind. I know there was some press over the course of the weekend.

Speaker 3: that talk to some of the potential delays, but.

Speaker 3: At the end of the day, as we think about the energy transition, we think about various ways in which certainly the coasts are going to be powered with renewable sources. offshore has a role to play there. And I think what we want to do is build up a business that has a respectable, profitable.

Larry Culp: Really pleased with the progress we're making in onshore. I think everything that we said a year ago is playing out in terms of our selectivity, the improvement in the quality of the backlog from a pricing and from a cost perspective. I think the team here, we've talked often about how they're going to run the power playbook, have done a really nice job making sure that we are working through some of the quality issues that triggered the charge that we took in the third quarter of last year. And again, our cost base is 30% better than it was just 12 months ago. So, you put that together, you can really see the turn in onshore and grid. We don't talk a lot about grid, but really pleased with similar execution against a backdrop where I think, maybe more so in Europe, but increasingly here in the U.S., people appreciate how critical grid modernization will be to the energy transition. So, we've got three, as they say, aerospace angles of attack in renewables. Gas, continuing to play a vital role. So, we like the way that we're positioned, offshore wind being one play among many at GE Vernova.

Speaker 3: have done a really nice job making sure that we are working through some of the quality issues that triggered

Speaker 3: And again, our cost base is 30% better than it was just 12 months ago. So, you put that together, you can really see the turn in onshore and grid. We don't talk a lot about grid, but really pleased with similar execution against a backdrop where I think, maybe more so in Europe, but increasingly here in the U.S., people appreciate how critical grid modernization will be to the energy transition. So, we've got three, as they say, aerospace angles of attack in renewables. Gas, continuing to play a vital role. So, we like the way that we're positioned, offshore wind being one play among many at GE Vernova.

Speaker 3: people appreciate how critical grid modernization will be to the energy transition. So we've got three, as they say in aerospace, angles of attack in renewables.

Speaker 3: gas continuing to play a vital role. So we like the way that we're positioned offshore wind being one play amongst many at GE Vernova.

Operator: Our next question comes from the line of Seth Seifman with JPMorgan.

Multiple: [Seth Seifman]  Hey, good morning.  [Larry Culp]  Good morning, Seth.  [Carolina Happe]  Good morning, Seth.  [Seth Seifman] So, I wanted to ask, with regard to the margin rate for aerospace in the second half, if you could talk a little bit about, you know, what role you expect pricing to play there and the extent to which it can offset the mix headwinds. And then, maybe just a technical question. I think you talked about really strong growth in spare parts. And just when we try to think about this and model it going forward, I think if I look in the queue, it's like a low single-digit growth in the spares rate per day, but I think spares were up something like 40% in the quarter. So, just kind of how to square those things and how we can kind of, you know, measure that and think about it going forward.  And then, maybe just a technical question. I think you talked about really strong growth in spare parts. And just when we try to think about this and model it going forward, I think if I look in the queue, it's like a low single-digit growth in the spares rate per day, but I think spares were up something like 40% in the quarter. So, just kind of how to square those things and how we can kind of, you know, measure that and think about it going forward. [Rahul Ghai]  So, let me start with the first question on pricing, Seth. So, again, I think the price continues to be a positive driver in terms of earnings growth across both defense and commercial. And we are price cost positive both in the quarter and expect to be price cost positive for the year. So, the trends continue to be good, and that is similar to what we saw last year. So, really, no change in terms of how we're driving incremental pricing to cover the inflation that we are feeling in the business.

Speaker 7: And then, maybe just a technical question. I think you talked about really strong growth in spare parts. And just when we try to think about this and model it going forward, I think if I look in the queue, it's like a low single-digit growth in the spares rate per day, but I think spares were up something like 40% in the quarter. So, just kind of how to square those things and how we can kind of, you know, measure that and think about it going forward.  And then, maybe just a technical question. I think you talked about really strong growth in spare parts. And just when we try to think about this and model it going forward, I think if I look in the queue, it's like a low single-digit growth in the spares rate per day, but I think spares were up something like 40% in the quarter. So, just kind of how to square those things and how we can kind of, you know, measure that and think about it going forward.

Speaker 6: [Rahul Ghai]  So, let me start with the first question on pricing, Seth. So, again, I think the price continues to be a positive driver in terms of earnings growth across both defense and commercial. And we are price cost positive both in the quarter and expect to be price cost positive for the year. So, the trends continue to be good, and that is similar to what we saw last year. So, really, no change in terms of how we're driving incremental pricing to cover the inflation that we are feeling in the business.

Speaker 6: we are price-cost positive both in the quarter and expect to be price-cost positive for the year. So the trends continue to be good and that is similar to what we saw last year. So really no change in terms of how we're driving incremental pricing to cover the inflation that we are feeling in the business.

Rahul Ghai: Now, in terms of our spare parts sales, yeah, the spare parts sales, you're right. I mean, it was really good growth in the quarter, more than 40%. And I would say, three large drivers of the spare parts growth. First, the price increases that we just spoke about. But it's just not the increases. It's also the discipline with which we're driving the business so that we're making sure that we are extracting the most out of the price increases that we are putting in place. So that we're making sure that we are extracting the most out of the price increases that we are putting in place.

Speaker 6:

Rahul Ghai: The second was the customer mix was favorable as well. So, that helped drive spare parts sales. And the third, I would say, is if you go back to 2022, you know, China was really weak last year, especially in the second and the third quarters because of the shutdowns in China. So, the year-over-year growth trends were helped by a week compared in the second quarter in China.

Rahul Ghai: Now that dynamic is going to shift a little bit as we get into the second half of the year because if you recall, China came back really strongly in the fourth quarter to get ready for the reopening in first quarter. So that's going to impact our spare part growth in the second half of the year on a year-over-year basis. So overall, I think we're really pleased with how spare parts are trending, good growth in the quarter and growth in the quarter. you know, expect continued growth in the second half of the year on a year-over-year basis, although at a slower rate.

Speaker 6: you know, expect continued growth in the second half of the year on a year-over-year basis, although at a slower rate.

Operator: Our next question comes from the line of Julian Mitchell with Barclays.

Julian Mitchell: Hi, good morning. Maybe just wanted to focus on the renewables business because I guess you had a very strong revenue uplift but the sort of incrementals, perhaps, you know, if we're looking sequentially or year on year, we're not particularly strong. So, maybe help us kind of parse that out in terms of, you know, maybe it's offshore losses getting a lot wider, and that's offsetting better incrementals maybe at onshore and grid. Maybe just talk through some of those dynamics. And then, as we're thinking about the second half for renewables and the sort of entry rate into 2024, how do we think about the losses narrowing? Is it sort of linear, or there's a step function sometime next year because of offshore mix or something?

Speaker 8: were not particularly strong. So maybe help us kind of parse that out in terms of, maybe it's offshore losses getting a lot wider, and that's offsetting better in cremacles, maybe it's onshore and grid, maybe just talk through some of those dynamics. And then as we're thinking about the second half.

Larry Culp: Julian, let me frame that for you. I think you've got the contours exactly right. Again, I think that in 2023, what we've said all along is that what we really need to see is that sequential improvement in onshore wind. And that was really, if you will, the battleground for us this year as we get ready to have Vernova go sometime early next year. And I think, all in all, we saw that sequential improvement. Again, a function of a better backlog being shipped from a pricing, from a terms and conditions perspective. Some of that's a function of our selectivity. Some of that's a function of just improved market conditions. We know we are delivering a higher-quality product to customers today.

Speaker 3: Frame that for you, I think you've got the contours exactly right again. I think that in 2023, what we've set all along is that what we really need to see is that sequential improvement. in onshore wind. And that was really, if you will, the battleground for us this year as we get ready to have Vernova go sometime early next year. And I think all in all, we saw that.

Speaker 3: in onshore wind. And that was really, if you will, the battleground for us this year as we get ready to have Vernova go sometime early next year. And I think all in all, we saw that.

Speaker 3: And that was really, if you will, the battleground for us this year as we get ready to have Vernova go sometime early next year. And I think all in all, we saw that.

Speaker 3: sequential improvement, again a function of a better backlog being shipped from a pricing, from a terms and conditions perspective. Some of that's a function of our selectivity. Some of that's a function of just improved market conditions. We know we are delivering a higher quality product to customers today.

Speaker 3: a better backlog being shipped from a pricing, from a terms and conditions perspective. Some of that's a function of our selectivity. Some of that's a function of just improved market conditions. We know we are delivering a higher quality product to customers today.

Larry Culp: That's reflected in our cost performance, let alone the restructuring that has been underway there. And that really continues. And I'd also suggest that beyond what you see in those numbers, what I see in our operating reviews really gives me confidence that the team's running this business the way we want them to run it. And that bodes well, both for the back half improvements that are part of the guide here, but also getting us ready for next year. Again, a similar rollout in grid. We've been running the power playbook there for the last couple of years and having them turn profitable. Now, that's the goal we want to be a strong contributor here. I think it's another proof point of progress.

Speaker 3: Beyond what you see in those numbers, what I see in our operating reviews really gives me confidence.

Speaker 3: that the teams running this business that we would want them to run it. And that votes well, both for the back half improvements that are part of the guide here, but also getting us ready for for next year. Again, a similar...

Speaker 3: rollout in grid. We've been at we've been running the power playbook there for the last couple of years and having them turn profitable. Not that that's the goal. We want to be a strong contributor here. I think it's another proof point of progress.

Multiple: [Larry Culp] You're right, offshore wind does begin to negate some of that progress as that mix effect takes a hold with the uptake in offshore revenues improving, and, thus, the revenue recognition and the losses there as we work through that initial backlog. But we knew that was part of the start-up of offshore wind. So, we see sequential progress. It's muted a bit, perhaps, in your eyes because of the offshore effect -- I mean, offshore was roughly half of the loss in the second quarter. But given the progress in onshore wind, given the progress in grid, given what we know we're going to be able to do an offshore wind next year, we feel very good about the progress and the momentum that we're making at Vernova and renewables at large. [Rahul Ghai] So, just to add to what Larry just said. So, if you look at Vernova, we are raising both the revenue and the profit guidance for the year, about 150 million of the profit raises from midpoint. And it's coming both with power and renewables contributing to the race. But a third of that is from the second quarter performance in power, driven by the strength of the services business, and about two-thirds from renewables in the second half of 2023 with improvement in both onshore and grid, onshore mainly because of the backlog margins improving and in grid from volume and productivity. So, good progress in both businesses year over year and on a sequential basis. And grid, onshore mainly because of the backlog margins improving, and in grid from volume and productivity. So good progress in both businesses yearerover-over-year and on a sequential basis.

Speaker 3: improving and thus the revenue recognition and the losses there as we work through that initial backlog. But we knew that was part of the startup of offshore wind. So we see sequential progress. It's muted a bit perhaps.

Speaker 3: In your eyes because of the offshore effect, I mean offshore was roughly half of the loss in the second quarter. But given the progress in onshore wind, given the progress in grid, given what we know we're going to be able to do in offshore wind next year, we feel very good about the progress and the momentum that we're making at Vernova.

Speaker 6: [Rahul Ghai] So, just to add to what Larry just said. So, if you look at Vernova, we are raising both the revenue and the profit guidance for the year, about 150 million of the profit raises from midpoint. And it's coming both with power and renewables contributing to the race. But a third of that is from the second quarter performance in power, driven by the strength of the services business, and about two-thirds from renewables in the second half of 2023 with improvement in both onshore and grid, onshore mainly because of the backlog margins improving and in grid from volume and productivity. So, good progress in both businesses year over year and on a sequential basis.

Speaker 6:

Operator: Our next question comes from Robert Spingarn with Melius Research.

Multiple: [Robert Spingarn] Good morning, everyone.  [Carolina Happe] Good morning. [Larry Culp] Good morning, Rob. [Robert Spingarn] Larry, maybe on the product development side, perhaps, a little high level, but Airbus has said that an A220-500 is a matter of when and not if. And they've also openly talked about the desire to add a second engine to the family. So, given that that aircraft would directly compete against the MAX 8, do you feel the need to get the LEAP-1B onto the A220 family?

Speaker 7: Larry, maybe on the product development side, perhaps a little high level, but Airbus has said that an A22500 is a matter of when and not if, and they've also openly talked about the desire to add a second engine. to the family. And so given that that aircraft would directly compete against the MAX 8, do you feel the need to get the LEAP-1B onto the A220 family?

Speaker 7: to the family. And so given that that aircraft would directly compete against the MAX 8, do you feel the need to get the LEAP-1B onto the A220 family?

Multiple: [Larry Culp] Rob, I thought your multi-series coverage on that specific topic and how the two airframers are going to play out their neurobody product strategy here really captured well the critical questions that we're all wrestling with. As you probably can respect, we're in deep with both of our airframer customers relative to our own product roadmap and technology roadmap for that matter, i.e. RISE, and how we can work together as they evolve their own product strategies. So, specifically to the A220-500, I think we'll keep our comments private. We'll have that conversation with Guillaume and his team. But obviously, as we evolve our product portfolio, we want to be on all the critical platforms that matter in the decades ahead. [Operator] Our next question comes from the line of Deane Dray with RBC Capital Markets. [Deane Dray] Thank you. Good morning, everyone.  [Steve Winoker] Hey, Deane. [Larry Culp] Good morning, Deane.

Speaker 3: As you probably can respect, we're in deep with both of our air frame or customers relative to our own product roadmap and technology roadmap for that matter, i.e. rise.

Speaker 3: and how we can work together as they evolve their own product strategies. So specifically to the A220-500, I think we'll keep our comments private. We'll have that conversation with Gilm and his team. But obviously, as we evolve our product portfolio, we want to be on all the critical platforms.

Multiple: [Deane Dray] First of all, thank you to Carolina, and wish you all the best. [Carolina Happe] Thank you, Deane. [Deane Dray] Larry, I know you talked about the renewable orders that were booked in terms of profitability. But can you generalize a bit and talk about the range of customer modifications within these orders that were booked that had been a problem before, you know, too much variability versus steering customers who have more standardized offering? Did that read out in these orders?

Speaker 10: Thank you, Dean. Larry, I know you talked about the renewable orders that were booked in terms of profitability, but can you generalize a bit and talk about the range of customer modifications within these orders that were booked that had been a problem before? too much variability versus steering cussers who are more standardized offering. That that read out in these orders.

Speaker 10: too much variability versus steering cussers who are more standardized offering. That that read out in these orders.

Larry Culp: Deane, we should have mentioned that earlier. Thanks for asking about that. Part of what we've tried to do in addition to our selectivity effort in terms of the types of opportunities that we pursue is also make sure that, you know, frankly, we are driving more standardized offerings. I would say that, you know, we are seeing probably more in the order book than in the P&L today the positive effect of that. I'd also say, coupled with that, it's just frankly a more conservative forward estimation of cost.

Speaker 3: opportunities that we pursue is also make sure that, frankly, we are driving more standardized offerings. I would say that we are seeing probably more in the order book than in the P&L today.

Speaker 3: the positive effect of that. I'd also say coupled with that, it's just a frankly a more conservative forward estimation of cost.

Multiple: [Larry Culp]  And that will play out over time. We'll see how conservative those estimates are. But I know that the team, for the last several quarters, is really not that too far into the future vis-a-vis the cost position that we anticipate having when we deliver on this growing backlog. So, you put all that together in addition to the quality improvements that we put across the sharply reduced cost structure that we have in the business, I think that's why we've got, particularly in onshore wind, the optimism we do about the back half and profitability in 2024. [Operator] Our next question comes from Jeffrey Sprague with Vertical Research Partners. [Jeff Sprague]  Thank you. Good morning, everyone.  [Carolina Happe]  Good morning. [Larry Culp]  Good morning, Jeff.

Speaker 3: addition to the quality improvements that we put across the

Speaker 3: sharply reduced cost structure that we have in the business. I think that's why we've got particularly an onshore when the optimism we do about the back-calf and profitability in 2024. Our next question comes from Jeff Reesprig with Vertical Research Partners. Thank you. Good morning, everyone. Hey, Jeff. Good morning, Jeff.

Jeffrey Todd Sprague: Hey, good morning. Hey,  just to follow up on renewables maybe, I just wanted to get your thoughts on the trajectory of free cash flow. I'm kind of stuck with the same language, right, flat to improving. But I'm wondering if inside that, given, you know, the better trajectory of profitability apparently and what looks like some decent orders that should be coming with deposits attached if in fact, you know, the free cash flow outlook for renewables has improved for the year. And if you have anything to share about how you view 2024 playing out. Thank you.

Speaker 2: What looks like some decent orders that should be coming with deposits attached if in fact, you know the free cash flow outlook for renewables has improved for the year and if you have anything to share about how you view 2024 playing out. Thank you.

Rahul Ghai: So, let me start, Jeff, with 2023 first. So, on renewables for full year, you know, in the current construct, what you'll find is, you know, kind of flattish to last year, 150-ish million positive from earnings, right? You know, huge growth in earnings minus the charge that we took last year. And good progress on onshore wind here, especially with the progress payments. You know, grid's doing well, but it's getting offset by the offshore from absence of progress payments and the way the contract assets are playing out.

Speaker 6: huge growth in earnings minus the charge that we took last year and good progress on onshore wind here, especially with the progress payments. You know, grid's doing well, but it's coming, you know, it's getting offset by the offshore from absence of progress payments and the way the contract assets are playing out.

Multiple: [Rahul Ghai] So, overall, renewables, think of that as kind of, you know, flat year over year for full year. And then, if you go to power, the fact is power free cash would be slightly down year over year. Again, positive earnings from cash, but it's getting pressured with these contract assets because as the revenue growth happens, we burn through the contract assets that are sitting on our books because the revenue exceeds the billings. So, that's what's happening on the power side. So, it's good for the business, the revenue growth is happening, the outages are helping, it's driving good revenue growth, but has a temporary negative impact on free cash. Now, obviously, as we get into 2024, we'll provide more guidance as we get toward the end of the year next year. But, you know, we do expect strong sequential improvement year over year in the business overall. [Operator]  Our next question comes from Nigel Coe with Wolfe Research.

Speaker 6: that are sitting on our books because the revenue exceeds the billing. So that's what's happening on the power side. So it's good for the business, the revenue growth is happening, the outages are helping, it's driving good revenue growth, but has a temporary negative impact on free cash. Now obviously as we get into 2024, we'll provide more guidance as we get towards the end of the year into next year, but we do expect strong sequential improvement year over year in Lenovo business overall.

Multiple: [Nigel Coe] Carolina, congratulations and good luck. I'm just wondering if maybe we could start into maybe 3Q, you know, and look at some of the moving pieces for both earnings and free cash flow. And on top of that, this $1 billion charge on the Polish bank, is that just writing down remaining, you know, net asset value in that business, no cash. And does that clean up litigation there? Thanks. [Rahul Ghai] Yeah. So, on Poland, Nigel, I didn't fully follow your third quarter question, so let's come back to that, but let me start with Poland. So, we've been working to simplify the legacy liabilities, and it's a meaningful step forward in that direction prior to spin. We're approving a settlement program, and that significantly reduces our exposure to future losses. And as Carolina said in her prepared remarks, there's no incremental GE cash from taking this reserve as the bank has adequate cash balances. So, we feel good to get this as much as we can behind us. Obviously, the situation is evolving. But at this point, it's a really good step forward as we clean up and simplify all the legacy liabilities.

Speaker 11: This is one billion dollar charge on the Porsche Bank. Is that just writing down remaining net asset value in that business, no cash? And does that clean up litigation there? Thanks. Yeah, so on Poland, Nigel, I didn't fully follow your third quarter question, so let's come back to that, but let me start with Poland. So we've been working to simplify the legacy liabilities. And it's a meaningful step forward in that direction prior to spin. We're improving a settlement program, and that significantly reduces our exposure to future losses. And as Carolina said in a prepared remarks, there's no incremental GE cash from taking this reserve as the bank has adequate cash balances. So we feel good to get this as much as we can behind us. Obviously the situation is evolving, but at this point, it's a really good step forward as we clean up and simplify all the legacy ladilities.

Speaker 6: And it's a meaningful step forward in that direction prior to spin. We're improving a settlement program, and that significantly reduces our exposure to future losses. And as Carolina said in a prepared remarks, there's no incremental GE cash from taking this reserve as the bank has adequate cash balances. So we feel good to get this as much as we can behind us. Obviously the situation is evolving, but at this point, it's a really good step forward as we clean up and simplify all the legacy ladilities.

Speaker 6: And as Carolina said in a prepared remarks, there's no incremental GE cash from taking this reserve as the bank has adequate cash balances. So we feel good to get this as much as we can behind us. Obviously the situation is evolving, but at this point, it's a really good step forward as we clean up and simplify all the legacy ladilities.

Multiple: [Steve Winoker] And the 3Q question was just guide. Just how are we thinking about 3Q guide overall? [Rahul Ghai] Yeah. So, on third quarter, you know, expect high single-digit revenue growth in the quarter. And then, EPS range of about $0.45 to $0.55 with sequential profit growth in both aerospace and in renewables. And, you know, we'll see a pretty strong growth in power in the third quarter on profit and, you know, expect the margins to go up three to four points on power. And if you look at the EPS that we are providing, the range that we are providing of $0.45 to $0.55 cents, that's about 2x what we did last year, even if we exclude the charge. So, it's a significant improvement from that.

Speaker 6: sequential profit growth in both aerospace and in renewables.

Speaker 6: And, you know, we'll see a pretty strong growth in power in the third quarter on profit and, you know, expect the margins to go up three to four points on power. And if you look at the EPS that we are providing, the range that we are providing of $0.45 to $0.55 cents, that's about 2x what we did last year, even if we exclude the charge. So, it's a significant improvement from that.

Rahul Ghai: And for aerospace, you know, going back all the way to prior questions, profit will be up sequentially, but the margin rates could be down slightly, given the majority of the first half to second half increase is coming from commercial OE. And then, renewables will continue to see sequential improvement, given onshore wind and grid performance.

Multiple: [Rahul Ghai] And then, as I said, power, you know, given the outage activity in the third quarter, we do expect good improvement there. [Steve Winoker]  And free cash.  [Rahul Ghai]  And the free cash, kind of flat to up slightly in the quarter with earnings growth and working capital reduction offsetting the AD&A headwinds.

Multiple: [Operator]  Our next question comes from Andrew Kaplowitz with Citi.  [Andy Kaplowitz]  Good morning, everyone. Carolina, thanks for your help.

Speaker 1: Our next question comes from Andrew Kaplowitz with City. Good morning everyone, Carolyn, thanks for your help.

Multiple: [Steve Winoker]  Hey, Andy. [Carolina] Happe  Hi, Andy. Thank you. [Larry Culp]  Good morning. [Andy Kaplowitz]  Could you give us some little more color into the improvement you're seeing in your defense business? You talked about orders more than doubling, revenue was up 31%. Has defense growth and profitability really turned the corner for you guys? And how do we think about its contribution to growth and margin over the next couple of quarters and into '24? I know you said that you expect at least high single-digit growth for defense, but does GE Defense now have an extended runway for growth? [Larry Culp] Andy, maybe I'll start. As we indicated in our prepared remarks, and I think we have through the last several quarters, demand is not our fundamental challenge in the defense arena. Throughput is. And the supply chain challenges that we've talked about, everyone talks about, certainly apply to defense. I think we've had some particular issues that have challenged us, especially so with the first quarter numbers.

Speaker 3: We're a little bit, you spent the least high single digit growth for defense, but does G-defense now have an extended run wave for growth? Any, maybe I'll start. Is we educated in our prepared remarks? And I think we have through the last several quarters.

Speaker 3: [Larry Culp] Andy, maybe I'll start. As we indicated in our prepared remarks, and I think we have through the last several quarters, demand is not our fundamental challenge in the defense arena. Throughput is. And the supply chain challenges that we've talked about, everyone talks about, certainly apply to defense. I think we've had some particular issues that have challenged us, especially so with the first quarter numbers.

Larry Culp: I think we're really encouraged by what we have seen recently, not only with the T700, but with a host of platforms where our material flow in our own facilities is better. We are improving yields in a number of key operations that allows that flow to take place. And we talked a little bit about PFEP, our Plan for Every Part, how that helps us implement pull and turn improved deliveries. So, our signals to not only our internal supply base, but also our external supply base, are better and more clear. We're not just trying to work against past due but really targeting what we need when we need it. And that has, in turn, I think, had some early impact here.

Larry Culp: And to the extent that we're able to do that productively, and we've certainly seen, I think, improvements, not only in traditional material price cost, but also beginning to see some labor productivity improvements, all of that accrues to our good. But as long as we're able to continue to drive this output level, we'll see that high single-digit top-line number, and, in turn, the goodness that will follow from a margin and from a cash perspective.

Speaker 3: not only in traditional material price cost, but also beginning to see some labor productivity improvements. All of that accrues to our good. But as long as we're able to continue to drive this output level, we'll see that high single digit top line number and in turn, the goodness that will follow up from a margin and from a cash perspective.

Speaker 3: the goodness that will follow up from a margin and from a cash perspective.

Multiple: [Larry Culp] Rahul, anything you'd like to add there? [Rahul Ghai] No, Larry. I think you covered it. I think it's good to see the recovery happening in the second quarter kind of puts us back on track for the full year. And we're seeing good demand and good improvement in year-over-year delivery. So, you know, expect a good half and the back half of the year. [Operator] Our next question comes from the line of Joe Ritchie with Goldman Sachs.

Speaker 1: in the back half of the year. Our next question comes from the line of Joe Ritchie with Goldman Sachs.

Multiple: [Joe Ritchie] Hey, good morning, guys. And, Carolina, thank you for all the help throughout the years.  [Carolina Happe]  Thank you.  [Joe Ritchie] So, really my question -- congrats on all the progress you're making, cleaning up the balance sheet with the [Inaudible] redemption, the post-market announcement today. I'm just curious, from this point forward, you know, how are you thinking about capital allocation pre-spin? And then, any color that you can give us on, you know, just the progress of the spin? I know you said early 2024, but just any other hurdles that you see from here to there? [Larry Culp] Joe, I would say that there really isn't any change in our perspective this morning with respect to the spend and the capital allocation decisions that we'll take between now and then.

Speaker 3: And then any color that you can give us on, you know, just the progress of the spend. I know you said early 2024, but just any other hurdles that you see from here to there. Joe, I would say that there really isn't any change in our perspective this morning with respect to the spend and the capital allocation decisions that we'll take between now and then.

Larry Culp: We've talked about Vernova launching sometime early next year. That is still very much the case today. We've talked about that really being a function of their performance, not necessarily our readiness, because the teams that are focused on the separation work had, I think, real success with healthcare are rerunning that playbook here and are exactly where we would want to be in the middle of July.

Speaker 3: The teams that are focused on the separation work had, I think, real success with healthcare, are rerunning that playbook here, and are exactly where we would want to be in the middle of July .

Larry Culp: So, as we look forward, again, I think we're really encouraged by what we have seen in the first half results and in the second half outlook. Still work to do, right? There's a negative operating loss there that none of us feel great about. But I think what we've said is the way we'll define winning is sequential improvement business by business.

Larry Culp: And what we've seen in onshore and grid, I think we can all be quite proud of. With respect to capital allocation, job one remains a successful standup of all three of these companies. And while you've seen us continue to make progress on some of the specific initiatives, like the monetization of the AerCap stake, likewise, with healthcare; you mentioned the [Inaudible], thank you; even the -- well you put all that together, we're very much going to be in a position from a balance sheet perspective, to not only launch, but then allow each of the respective boards at Aerospace and Vernova to shape the contours of a capital allocation policy fit for each business. So, that may be a little boring, perhaps, here in the near term, but this team is hyper-focused on what our overarching priority is over the next several quarters. And that is the successful spin of GE Vernova and successful standup of GE Aerospace.

Speaker 3: likewise, with healthcare; you mentioned the [Inaudible], thank you; even the -- well you put all that together, we're very much going to be in a position from a balance sheet perspective, to not only launch, but then allow each of the respective boards at Aerospace and Vernova to shape the contours of a capital allocation policy fit for each business. So, that may be a little boring, perhaps, here in the near term, but this team is hyper-focused on what our overarching priority is over the next several quarters. And that is the successful spin of GE Vernova and successful standup of GE Aerospace.

Speaker 3: Even the, well, you put all that together, we're very much going to be in a position from a balance sheet perspective to not only launch, but then allow each of the respective boards at Aerospace and Vernova to shape the contours of capital allocation policy fit for each business. So that may be a little boring perhaps here in the near term, but this team is hyper focused on what our over-rushing priority is over the next several quarters. And that is the successful spin of GE Renova and successful stand-up of GE Aerospace.

Speaker 3: So that may be a little boring perhaps here in the near term, but this team is hyper focused on what our over-rushing priority is over the next several quarters. And that is the successful spin of GE Renova and successful stand-up of GE Aerospace.

Multiple: [Steve Winoker] Liz, we have time for one last quick question.  [Operator] This question will come from the line of Chris Snyder with UBS.

Multiple: [Chris Snyder] I appreciate the time. I want to ask on renewables. The revenue was up 12% in the first half of the year. With the full year guidance for high single-digit revenue growth, I guess it's implying a fall down to low singles in the back half of the year. Can you talk about what's driving that? It doesn't seem to jive with orders up, you know, well over 100% for the first half. Thank you.  [Rahul Ghai] So, the orders don't help much this year, Chris. I mean, that's mainly -- you know, those revenues -- those orders will kind of, you know, play out, you know, over '24 and even '25. So, and what you see between the, you know, the first-half growth and the second-half growth is just basically project timing. It's just a question of which projects are getting executed and how those projects play out. So, but, you know, again, it's good progress. Feel better about the year, you know, raising guidance on renewables on revenue growth. So, it's good progress, and the orders are obviously very, very strong. And that helps '24 and '25.

Speaker 6: second-half growth is just basically project timing. It's just a question of which projects are getting executed and how those projects play out. So, but, you know, again, it's good progress. Feel better about the year, you know, raising guidance on renewables on revenue growth. So, it's good progress, and the orders are obviously very, very strong. And that helps '24 and '25.

Steven Winoker: Thanks, Rahul. Larry, any final comments?

Multiple: [Larry Culp] Steve, thank you. No, I would say simply to close, a strong first half in 2023. And frankly, I've never been more confident in our path ahead as we prepare to launch both GE Aerospace and GE Vernova. Thanks to everybody for your time today and your investment and support of our company. [Operator] Thank you ladies and gentlemen. This concludes today's conference. Thank you for participating. You may now disconnect.

Speaker 3: Thank you ladies and gentlemen. This concludes today's conference.

Speaker 1: Thank you for participating. You may now disconnect.

Speaker 14: I'll see you in the next video. The the. At this time, all participants are in a listen-only mode. My name is Liz, and I will be your conference coordinator today. If you experience issues with the webcast slides refreshing or there appears to be delays in the slide advancement, please hit F5 on your keyboard to refresh.

Speaker 14: The the.

Speaker 1: At this time, all participants are in a listen-only mode. My name is Liz, and I will be your conference coordinator today.

Speaker 1: If you experience issues with the webcast slides refreshing or there appears to be delays in the slide advancement, please hit F5 on your keyboard to refresh.

Speaker 1: 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 Winneker, Vice President of Investor Relations. Please proceed. Thanks Liz. Welcome to GE's second quarter 23 earnings call. I'm joined by Chairman and CEO Larry Culp and CFO Carolina Dybeck Hoppe. GE Aerospace CFO Rahul Gai, who will also assume the role of GE CFO in September , will join us for Q&A. 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 website, those elements may change as the world changes. Over to Larry. Steve, thank you and good morning, everyone.

Speaker 13: Thanks Liz. Welcome to GE's second quarter 23 earnings call. I'm joined by Chairman and CEO Larry Culp and CFO Carolina Dybeck Hoppe.

Speaker 13: GE Aerospace CFO Rahul Gai, who will also assume the role of GE CFO in September , will join us for Q&A. 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 website, those elements may change as the world changes. Over to Larry. Steve, thank you and good morning, everyone.

Speaker 3: The GE team turned in another strong quarter with double digit growth and orders, revenue, operating profit and cash, supported by services strength, robust market demand and the lean transformation within our more focused businesses. In the first half alone, earnings have now surpassed our full year 2022 results. GE Aerospace is growing rapidly as we execute on the ramp for our customers. NGE Vernova is strengthening pre-spin with record orders and improving profitability at renewable energy and continued margin expansion at power. Base largely on year-to-day performance and expectations for continued strength in the Airshow, GER space shared our bold vision to define flight for today, tomorrow and the future during meetings with customers, suppliers and investors. CFM's rise demonstrator program drew a lot of excitement as it aims to reduce fuel consumption and CO2 emissions by at least 20 percent compared to today's most efficient engines.

Speaker 3: GE Aerospace is growing rapidly as we execute on the ramp for our customers. NGE Vernova is strengthening pre-spin with record orders and improving profitability at renewable energy and continued margin expansion at power. Base largely on year-to-day performance and expectations for continued strength in the

Speaker 3: Airshow, GER space shared our bold vision to define flight for today, tomorrow and the future during meetings with customers, suppliers and investors. CFM's rise demonstrator program drew a lot of excitement as it aims to reduce fuel consumption and CO2 emissions by at least 20 percent compared to today's most efficient engines.

Speaker 3: I also saw our GE Vernova team for our onshore wind and grid operating reviews, where we discussed opportunities and challenges with equal candor and transparency. We focus on how we grow these businesses profitably by applying real lean at the point of impact to drive results. We're also seeing leans impact in our offshore wind facility in San Deser, where the team has reduced cycle times to assemble in the cell roofs by nearly 50% through multiple chisines. So while it's still early, I'm encouraged by examples like this across GE Vernova. Day in, day out, we're increasingly operating as GE Aerospace. and GE Vernova, two industry leaders with large install bases where services represent about 70% of GE Aerospace revenue. and about half of GE Bernova revenue. In addition to attractive economics, services keep us close to our customers. We understand the issues they're wrestling with. and how our technology is performing, which shapes our future roadmaps. And with our businesses executing, we're advancing towards their launches as independent investment grade companies next year. When I reflect on how far we've come, it always starts with the team. So a big thank you to the entire global GE team. There's a lot to be excited about as we look forward to the rest of this year. Before I turn it over to Carolina to take you through our results in detail.

Speaker 3: We focus on how we grow these businesses profitably by applying real lean at the point of impact to drive results.

Speaker 3: We're also seeing leans impact in our offshore wind facility in San Deser, where the team has reduced cycle times to assemble in the cell roofs by nearly 50% through multiple chisines. So while it's still early, I'm encouraged by examples like this across GE Vernova. Day in, day out, we're increasingly operating as GE Aerospace.

Speaker 3: and GE Vernova, two industry leaders with large install bases where services represent about 70% of GE Aerospace revenue.

Speaker 3: and about half of GE Bernova revenue. In addition to attractive economics, services keep us close to our customers. We understand the issues they're wrestling with.

Speaker 3: and how our technology is performing, which shapes our future roadmaps. And with our businesses executing, we're advancing towards their launches as independent investment grade companies next year.

Speaker 3: When I reflect on how far we've come, it always starts with the team. So a big thank you to the entire global GE team. There's a lot to be excited about as we look forward to the rest of this year. Before I turn it over to Carolina to take you through our results in detail.

Speaker 3: Let me take a moment to welcome Rahul to his additional role as GE CFO this fall. Since joining GE Aerospace last year, he has quickly become an impactful and influential member of our GE Aerospace leadership team. And so with our final spin approaching sometime in early 2024, and Rahul assuming the CFO job September , First, this is Karolina's last earnings call. She has been a trusted strategic partner through significant deleveraging, improving our operating results in building the financial foundation for our three independent companies. We're deeply grateful for her many contributions. So on behalf of the entire GE team, and for me personally, Carolina, thank you. Thanks, Larry. It's truly an honor to be part of this ambitious transformation, and I'm incredibly proud of the work this team has done to build lasting value. And a special thank you to our finance and DT teams for their extraordinary efforts. Now, turning to slide three, which I'll speak to on an organic basis. In the second quarter, we delivered double digit growth across all. was a 21% growth in all segments largely driven by commercial aerospace strength. Revenue increased 19% with both equipment and services up. Also here, aerospace led the way a sleep engine delivery is nearly doubled and services grew.

Speaker 3: First, this is Karolina's last earnings call.

Speaker 3: She has been a trusted strategic partner through significant deleveraging, improving our operating results in building the financial foundation for our three independent companies.

Speaker 3: We're deeply grateful for her many contributions. So on behalf of the entire GE team, and for me personally, Carolina, thank you.

Speaker 4: Thanks, Larry. It's truly an honor to be part of this ambitious transformation, and I'm incredibly proud of the work this team has done to build lasting value. And a special thank you to our finance and DT teams for their extraordinary efforts. Now, turning to slide three, which I'll speak to on an organic basis. In the second quarter, we delivered double digit growth across all. was a 21% growth in all segments largely driven by commercial aerospace strength. Revenue increased 19% with both equipment and services up. Also here, aerospace led the way a sleep engine delivery is nearly doubled and services grew.

Speaker 4: was a 21% growth in all segments largely driven by commercial aerospace strength.

Speaker 4: Revenue increased 19% with both equipment and services up. Also here, aerospace led the way a sleep engine delivery is nearly doubled and services grew.

Speaker 4: Renewables also grew, led by onshore wind and grid, and improved pricing. Adjusted margin expanded 160 basis points driven by volume, price, and productivity. This was partially offset by mixed inflation and investments. Taken together, adjusted EPS was 68 cents. nearly double what we delivered last year, driven by profit growth in all segments and meaningful deleveraging. Free cash flow was $415 million, more than double what we delivered last year, driven by earnings growth.

Speaker 4: nearly double what we delivered last year, driven by profit growth in all segments and meaningful deleveraging. Free cash flow was $415 million, more than double what we delivered last year, driven by earnings growth.

Speaker 4: Looking at the flows, we reduced working capital from the first quarter. Given the sequential revenue growth and preparation for large second half deliveries, receivables and inventory reduce of cash. This was more than a set by progress payments and contract assets with utilization driven billings. At both GE Aerospace and River Nova, we're implementing Now a moment on corporate. Adjusted costs were up year-over-year, primarily driven by non-repeat of 2022 timing benefits. We're preparing for standalone cost structures with financial headcount down 10% year-to-date. And for the year we continue to expect expenses in the 600 million range. We also continue to simplify and strengthen the business foundations prior to the launches of GE Aerospace and GE Vernova. This quarter, we partially monetized our GE healthcare state, and today we announced that we will call the remainder of the outstanding GE preferred stock in September . further simplifying our balances and reducing financing costs. And we took action to reduce our exposure to legacy liabilities. As we've disclosed for some time, our runoff Polish mortgage portfolio bank BPH has been subject to ongoing litigation along with other Polish banks. We approved the adoption of a settlement program and associated with that we recorded a charge of 1 billion in discontinued operations.

Speaker 4: Now a moment on corporate. Adjusted costs were up year-over-year, primarily driven by non-repeat of 2022 timing benefits. We're preparing for standalone cost structures with financial headcount down 10% year-to-date. And for the year we continue to expect expenses in the 600 million range.

Speaker 4: We also continue to simplify and strengthen the business foundations prior to the launches of GE Aerospace and GE Vernova. This quarter, we partially monetized our GE healthcare state, and today we announced that we will call the remainder of the outstanding GE preferred stock in September . further simplifying our balances and reducing financing costs. And we took action to reduce our exposure to legacy liabilities. As we've disclosed for some time, our runoff Polish mortgage portfolio bank BPH has been subject to ongoing litigation along with other Polish banks. We approved the adoption of a settlement program and associated with that we recorded a charge of 1 billion in discontinued operations.

Speaker 4: further simplifying our balances and reducing financing costs. And we took action to reduce our exposure to legacy liabilities. As we've disclosed for some time, our runoff Polish mortgage portfolio bank BPH has been subject to ongoing litigation along with other Polish banks. We approved the adoption of a settlement program and associated with that we recorded a charge of 1 billion in discontinued operations.

Speaker 4: Importantly, no incremental cash contributions from GE are required in connections to the charge as the current cash balances at bank PPH are adequate. Overall, we're very pleased with our spin progress and first half, which includes adjusted EPS up more than three times compared to a year ago. So given the strength of G.E. Aerospace and the improvement at the Irvrenova for the full year, we're now expecting revenue growth in the low double digit range up from high single digits.

Speaker 4: So given the strength of G.E. Aerospace and the improvement at the Irvrenova for the full year, we're now expecting revenue growth in the low double digit range up from high single digits.

Speaker 4: $2.10 to $2.30 of adjusted DPS up from $1.70 to $2. And that includes $4.7 to $5.1 billion of operating profit. And finally, we now guide for a range of 4.1 to 4.6 billion for free cash flow up from 3.6 to 4.2 billion. And on that, happy note, back to you Larry. Carolina, thank you. As many of you saw at the Paris Air Show, the ERO space showcased industry leading solutions for both commercial and defense across propulsion, systems and services. Our teams are delivering for customers, both in services and by growing our large. growing and optimizing our next generation of engines. This quarter, for example, our defense team signed a historic MOU with Hindustan Aeronautics Limited to produce jet fighter engines for the Indian Air Force, and while our commercial business secured major deals with Riyadh, Aer, Jet 2, and more. For the future, we're developing next-generation technologies like RISE, hybrid electrics, and sustainable aviation fuels. As a result of our efforts to embed Lean and empower those closest to the action, I'm seeing greater intensity, discipline, and focus. For example, as we discussed in June while supply chain and inflation challenges persist, We're using a lean tool called Plan for Every Part to implement pull and improve delivery. Sustaining lean efforts like this help us increase sequential engine deliveries by 35% in the second quarter, including a 40% improvement in T700.

Speaker 4: And finally, we now guide for a range of 4.1 to 4.6 billion for free cash flow up from 3.6 to 4.2 billion.

Speaker 3: And on that, happy note, back to you Larry. Carolina, thank you. As many of you saw at the Paris Air Show, the ERO space showcased industry leading solutions for both commercial and defense across propulsion, systems and services. Our teams are delivering for customers, both in services and by growing our large.

Speaker 3: growing and optimizing our next generation of engines.

Speaker 3: This quarter, for example, our defense team signed a historic MOU with Hindustan Aeronautics Limited to produce jet fighter engines for the Indian Air Force, and while our commercial business secured major deals with Riyadh, Aer, Jet 2, and more. For the future, we're developing next-generation technologies like RISE, hybrid electrics, and sustainable aviation fuels. As a result of our efforts to embed Lean and empower those closest to the action, I'm seeing greater intensity, discipline, and focus. For example, as we discussed in June while supply chain and inflation challenges persist, We're using a lean tool called Plan for Every Part to implement pull and improve delivery. Sustaining lean efforts like this help us increase sequential engine deliveries by 35% in the second quarter, including a 40% improvement in T700.

Speaker 3: For the future, we're developing next-generation technologies like RISE, hybrid electrics, and sustainable aviation fuels. As a result of our efforts to embed Lean and empower those closest to the action, I'm seeing greater intensity, discipline, and focus. For example, as we discussed in June while supply chain and inflation challenges persist, We're using a lean tool called Plan for Every Part to implement pull and improve delivery. Sustaining lean efforts like this help us increase sequential engine deliveries by 35% in the second quarter, including a 40% improvement in T700.

Speaker 3: As a result of our efforts to embed Lean and empower those closest to the action, I'm seeing greater intensity, discipline, and focus. For example, as we discussed in June while supply chain and inflation challenges persist, We're using a lean tool called Plan for Every Part to implement pull and improve delivery. Sustaining lean efforts like this help us increase sequential engine deliveries by 35% in the second quarter, including a 40% improvement in T700.

Speaker 3: We're using a lean tool called Plan for Every Part to implement pull and improve delivery. Sustaining lean efforts like this help us increase sequential engine deliveries by 35% in the second quarter, including a 40% improvement in T700.

Speaker 3: from a 25% reduction in lead times. Looking at the market, the parkers have almost returned to pre-COVID levels. This rapid growth was evident in our quarterly results. Orders are up 37% with strength in commercial services and defense, where I've been who was up 28% with equipment growing double the services rate. Profit improved close to $350 million or nearly 30%. Margins contracted 30 basis points organically. Volume, pricing net of inflation, productivity were offset by unfavorable mix, increased investments, and the non-repeated positive contract margin adjustments last year. Once again, commercial engines and services was particularly robust. but we expect this to normalize in the second half, remaining roughly in line with 2022 for the full year. Commercial services revenue also grew over 30%. Internal shop visits increased over 10%, and external spare parts were up over 40%. For the year, we now expect commercial engines revenue to grow mid to high 20s. We now expect commercial engines revenue to grow mid to high 20s. and commercial services to grow above 20%. Defense improved this quarter delivering significant growth. Orders more than doubled?

Speaker 3: Orders are up 37% with strength in commercial services and defense, where I've been who was up 28% with equipment growing double the services rate.

Speaker 3: Profit improved close to $350 million or nearly 30%. Margins contracted 30 basis points organically. Volume, pricing net of inflation, productivity were offset by unfavorable mix, increased investments, and the non-repeated positive contract margin adjustments last year. Once again, commercial engines and services was particularly robust. but we expect this to normalize in the second half, remaining roughly in line with 2022 for the full year. Commercial services revenue also grew over 30%. Internal shop visits increased over 10%, and external spare parts were up over 40%. For the year, we now expect commercial engines revenue to grow mid to high 20s. We now expect commercial engines revenue to grow mid to high 20s. and commercial services to grow above 20%. Defense improved this quarter delivering significant growth. Orders more than doubled?

Speaker 3: but we expect this to normalize in the second half, remaining roughly in line with 2022 for the full year. Commercial services revenue also grew over 30%. Internal shop visits increased over 10%, and external spare parts were up over 40%. For the year, we now expect commercial engines revenue to grow mid to high 20s. We now expect commercial engines revenue to grow mid to high 20s. and commercial services to grow above 20%. Defense improved this quarter delivering significant growth. Orders more than doubled?

Speaker 3: Commercial services revenue also grew over 30%. Internal shop visits increased over 10%, and external spare parts were up over 40%. For the year, we now expect commercial engines revenue to grow mid to high 20s. We now expect commercial engines revenue to grow mid to high 20s. and commercial services to grow above 20%. Defense improved this quarter delivering significant growth. Orders more than doubled?

Speaker 3: and commercial services to grow above 20%. Defense improved this quarter delivering significant growth. Orders more than doubled?

Speaker 3: engine output increased with units up over 70% year over year. Through the first half we delivered double-digit revenue growth and we're on track for at least high single-digit growth this year. Looking ahead, we're constantly innovating here as well. Our XA100 is the only engine tested and ready to ensure the US maintains air superiority this decade. The US maintains air superiority this decade.

Speaker 3: Looking ahead, we're constantly innovating here as well. Our XA100 is the only engine tested and ready to ensure the US maintains air superiority this decade. The US maintains air superiority this decade.

Speaker 3: This engine is the most cost effective option to meet the needs of the US war fighter for decades to come. We're pleased the House has recognized the importance of this program by including funding in the National Defense Authorization Act and in the House Appropriations Committee Defense Bill. We'll be closely watching the Senate as it considers legislation this week. Based on our...

Speaker 3: First half strength, we're raising revenue growth to high teens to 20%, and operating profit to 5.6 billion to 5.9 billion dollars, up roughly a billion dollars, year over year at the midpoint. And we expect free cash flow to be even stronger year over year, in line. with our increased profit expectations. Moving to GE Vernova. We continue to see long-term growth tailwinds driven by the need for more sustainable, affordable, resilient energy along with energy security. And we're encouraged by the team's progress as they use lean to strengthen operations. driving toward a significant inflection in 2024. This quarter, renewables demonstrated continued improvement. Market demand drove record orders, led by grid with two more large HVDC projects. Even excluding these projects, grid orders were up over 40%. As expected, we also recognized a large U.S. offshore order, which was included in our backlog forecast at our March investor conference. Our wind was strong again, led by North American equipment growing more than three-fold. We serve many of North America's largest developers and the IRA incentives are helping grow orders significantly this year. Revenue grew 27% organically, driven by higher equipment deliveries across both wind and grid. An offshore revenue tripled euro a year as we increase in the cell production with June the highest month to date.

Speaker 3: with our increased profit expectations. Moving to GE Vernova. We continue to see long-term growth tailwinds driven by the need for more sustainable, affordable, resilient energy along with energy security. And we're encouraged by the team's progress as they use lean to strengthen operations.

Speaker 3: driving toward a significant inflection in 2024. This quarter, renewables demonstrated continued improvement. Market demand drove record orders, led by grid with two more large HVDC projects. Even excluding these projects, grid orders were up over 40%.

Speaker 3: As expected, we also recognized a large U.S. offshore order, which was included in our backlog forecast at our March investor conference. Our wind was strong again, led by North American equipment growing more than three-fold.

Speaker 3: We serve many of North America's largest developers and the IRA incentives are helping grow orders significantly this year. Revenue grew 27% organically, driven by higher equipment deliveries across both wind and grid. An offshore revenue tripled euro a year as we increase in the cell production with June the highest month to date.

Speaker 3: Importantly, profit improved year-to-year and sequentially for the second consecutive quarter driven by price and productivity improvements primarily at onshore and grid. Going deeper into each business, at onshore, the progress continued. First, we're seeing the impact of enhancing our underwriting rigor and focusing on select markets with fewer product offerings. Second, we're driving price to manage inflation as we've seen the past four quarters equipment margins on new orders are coming in higher. and reducing cycle times to deliver for our customers as we work through our initial projects. And finally, in grid, the top-line grew double digits in all businesses with significant margin expansion from volume, price, and productivity. innovative Grid was profitable this quarter and remains on track to turn profitable for the full year. Looking ahead, we're raising our full year renewables revenue growth forecast to high single digits. And we're expecting some sequential profit improvement in the second half driven by all on shorewind and grid. Turning to power. Power continues to deliver solid results in reliable earnings and cash flow.

Speaker 3: and reducing cycle times to deliver for our customers as we work through our initial projects.

Speaker 3: And finally, in grid, the top-line grew double digits in all businesses with significant margin expansion from volume, price, and productivity. innovative

Speaker 3: Grid was profitable this quarter and remains on track to turn profitable for the full year. Looking ahead, we're raising our full year renewables revenue growth forecast to high single digits. And we're expecting some sequential profit improvement in the second half driven by all on shorewind and grid. Turning to power. Power continues to deliver solid results in reliable earnings and cash flow.

Speaker 3: market GE gas turbine utilization grew at a low single digit rate this quarter. Order's crew, high single digits, was strained from gas power transactional services. Revenue declined slightly, largely due to aerogorrived abshipment timing.

Speaker 3: Order's crew, high single digits, was strained from gas power transactional services. Revenue declined slightly, largely due to aerogorrived abshipment timing.

Speaker 3: Services, however, continue to grow and we had higher H.A. deliveries. This provides stable base load power to the grid now and generates future services growth. price, productivity, and higher contractual outage volume on heavy duty units more than offset inflation. Overall, in the first half, power revenue grew mid-single digits organically and margins expanded, led by gas power services. For the year, we continue to expect low single digit revenue growth, and given our second quarter performance, we now expect power's profit to be even better.

Speaker 3: price, productivity, and higher contractual outage volume on heavy duty units more than offset inflation.

Speaker 3: Overall, in the first half, power revenue grew mid-single digits organically and margins expanded, led by gas power services. For the year, we continue to expect low single digit revenue growth, and given our second quarter performance, we now expect power's profit to be even better.

Speaker 3: versus 2022. Taken together for G. E. Bernobar, we're raising our revenue forecast to mid-single-digit growth. We're also improving our pro-adfit guidance, driven by both renewables and power. and now expect a negative $400 million to a negative $100 million this year, an improvement of almost $800 million year-over-year at the midpoint. We continue to expect flat to slightly improve free cash flow. Overall, we're pleased with our progress and momentum. expect flat to slightly improved free cash flow. Overall, we're pleased with our progress in momentum, but of course, more remains to be done.

Speaker 3: and now expect a negative $400 million to a negative $100 million this year, an improvement of almost $800 million year-over-year at the midpoint. We continue to expect flat to slightly improve free cash flow. Overall, we're pleased with our progress and momentum. expect flat to slightly improved free cash flow. Overall, we're pleased with our progress in momentum, but of course, more remains to be done.

Speaker 3: We continue to expect flat to slightly improve free cash flow. Overall, we're pleased with our progress and momentum. expect flat to slightly improved free cash flow. Overall, we're pleased with our progress in momentum, but of course, more remains to be done.

Speaker 3: expect flat to slightly improved free cash flow. Overall, we're pleased with our progress in momentum, but of course, more remains to be done.

Speaker 3: So to wrap up on slide 7, our businesses delivered a strong half anchored by missions that matter to our customers and to the world. So to wrap up on slide seven, our businesses delivered a strong half anchored by missions that matter to our customers and to the world. Geo space inventing the future of flight. GE Vernova electrifying and decarbonizing the world. We're excited about where we are and where we're headed. And I'm confident we're well positioned for success as two innovative service focus market leaders. Steve with that, let's go to Q&A. Thanks Larry. Before we open the line, I'd ask everyone in the queue to consider your fellow analysts and ask one question so we can get to as many people as possible. Liz, please open the line.

Speaker 3: So to wrap up on slide seven, our businesses delivered a strong half anchored by missions that matter to our customers and to the world. Geo space inventing the future of flight.

Speaker 13: GE Vernova electrifying and decarbonizing the world. We're excited about where we are and where we're headed. And I'm confident we're well positioned for success as two innovative service focus market leaders. Steve with that, let's go to Q&A. Thanks Larry. Before we open the line, I'd ask everyone in the queue to consider your fellow analysts and ask one question so we can get to as many people as possible. Liz, please open the line.

Speaker 1: Ladies and gentlemen, if you wish to ask a question, please press star 1 1 on your telephone. If you wish to withdraw your question or your question has already been answered, please press star 1 1 again. Our first question comes from Sheila Kailu with Jeffries. Good morning, everyone. Thank you. Morning, Sheila. Hi. I wanted to ask about aerospace profitability. When we look at year-to-date margins for the first half, the margin is 18.9 and the full year implied guidance is 18.5. What are the dynamics of contraction in the second half given the commentary in the release prior was the commentary in your releases, good market strength, efficiency, and the spot on and I think as we reference, there is largely a mixed dynamic in play as equipment revenues begin to accelerate here at B2B services. But I think that's an excellent question for Rahul to jump in on here. It's one of the reasons we wanted to have him here with us this morning. Rahul? Yeah, thanks, Larry. Morning, Sheila. So, you know, first let me just go back to the presentation. and brought the rules up more than 30% year over year with margin expansion.

Speaker 1: Our first question comes from Sheila Kailu with Jeffries. Good morning, everyone. Thank you. Morning, Sheila. Hi. I wanted to ask about aerospace profitability. When we look at year-to-date margins for the first half, the margin is 18.9 and the full year implied guidance is 18.5. What are the dynamics of contraction in the second half given the commentary in the release prior was the commentary in your releases, good market strength, efficiency, and the spot on and I think as we reference, there is largely a mixed dynamic in play as equipment revenues begin to accelerate here at B2B services. But I think that's an excellent question for Rahul to jump in on here. It's one of the reasons we wanted to have him here with us this morning. Rahul? Yeah, thanks, Larry. Morning, Sheila. So, you know, first let me just go back to the presentation. and brought the rules up more than 30% year over year with margin expansion.

Speaker 5: I wanted to ask about aerospace profitability. When we look at year-to-date margins for the first half, the margin is 18.9 and the full year implied guidance is 18.5. What are the dynamics of contraction in the second half given the commentary in the release prior was the commentary in your releases, good market strength, efficiency, and the spot on and I think as we reference, there is largely a mixed dynamic in play as equipment revenues begin to accelerate here at B2B services. But I think that's an excellent question for Rahul to jump in on here. It's one of the reasons we wanted to have him here with us this morning. Rahul? Yeah, thanks, Larry. Morning, Sheila. So, you know, first let me just go back to the presentation. and brought the rules up more than 30% year over year with margin expansion.

Speaker 3: spot on and I think as we reference, there is largely a mixed dynamic in play as equipment revenues begin to accelerate here at B2B services. But I think that's an excellent question for Rahul to jump in on here. It's one of the reasons we wanted to have him here with us this morning. Rahul? Yeah, thanks, Larry. Morning, Sheila. So, you know, first let me just go back to the presentation. and brought the rules up more than 30% year over year with margin expansion.

Speaker 6: and brought the rules up more than 30% year over year with margin expansion.

Speaker 6: And the quarter was better than what we had expected going back all the way to April . But more importantly, as we looked at the quarter, it gave us the confidence to raise the full year, and our profit is up a billion dollars for the year at the midpoint of the guide with year-over-year margin expansion. So that's a positive change as well. And relative to April , we are raising the full year profit by about $250 million at the mid-1 of the guide with about $400 million of revenue increase. So that's about a 60% incremental drop-through. That is happening even though most of the revenue increase in our guide is coming from commercial OE as we are raising the commercial OE outlook from approximately 20 to mid to high 20s.

Speaker 6: And relative to April , we are raising the full year profit by about $250 million at the mid-1 of the guide with about $400 million of revenue increase. So that's about a 60% incremental drop-through. That is happening even though most of the revenue increase in our guide is coming from commercial OE as we are raising the commercial OE outlook from approximately 20 to mid to high 20s.

Speaker 6: So the business is doing better on execution and the improvement in the spare parts growth is helping as well. Now to your question on the sequential view between first half and second half, the key driver to sequential growth is coming from commercial OE, which is probably 60% between first half, second half. And that's a reversal of what we saw last year. Last year, most of the first half to second half growth was commercial. Them to run it and that bodes well both for the back half improvements that are part of the the guide here, but also getting us ready for for next year again a similar. Rollout in in grid. We've been at.

Them to run it and that bodes well both for the back half improvements that are part of the the guide here, but also getting us ready for for next year again a similar.

Rollout in in grid.

We've been at. We've been running the power playbook there for the last couple of years and having them turn profitable not that that's the goal we want to be a strong contributor here I think is another proof point of progress. Youre right offshore wind does begin to negate some of that progress as that mix effect takes a hold with the uptake in offshore revenues. Improving and thus the revenue recognition and the losses there as we worked through that initial backlog.

We've been running the power playbook there for the last couple of years and having them turn profitable not that that's the goal we want to be a strong contributor here I think is another proof point of progress.

Youre right offshore wind does begin to negate some of that progress as that mix effect takes a hold with the uptake in offshore revenues.

Improving and thus the revenue recognition and the losses there as we worked through that initial backlog.

But we knew that was part of the startup of offshore wind. So we see sequential progress it's muted a bit perhaps. Youre right because of the offshore effect I mean offshore was. Roughly half of the. The loss in the second quarter, but given the progress in onshore win given the progress in grid, given what we know. We're gonna be able to do in offshore win next year. We feel very good about the progress and the momentum that we're making at <unk>. Renewables at large. So just to add. Drilling into what you. You said, so if you look at where no. While we are raising both our revenue and the profit guidance for the year. About $150 million of profit raise from midpoint to midpoint. And it's coming both with power and renewables contributing to the rates about a third of that is from the second quarter performance and power driven by the strength of the services business and about two thirds from renewables. In the second half of 2023 with improvement in both onshore and grid onshore mainly because of the backlog margins improving and in grade from volume and productivity. So good progress in both businesses year over year and on a sequential basis.

Youre right because of the offshore effect I mean offshore was.

Roughly half of the.

The loss in the second quarter, but given the progress in onshore win given the progress in grid, given what we know.

We're gonna be able to do in offshore win next year.

We feel very good about the progress and the momentum that we're making at <unk>.

Renewables at large.

So just to add.

Drilling into what you.

You said, so if you look at where no. While we are raising both our revenue and the profit guidance for the year. About $150 million of profit raise from midpoint to midpoint. And it's coming both with power and renewables contributing to the rates about a third of that is from the second quarter performance and power driven by the strength of the services business and about two thirds from renewables. In the second half of 2023 with improvement in both onshore and grid onshore mainly because of the backlog margins improving and in grade from volume and productivity. So good progress in both businesses year over year and on a sequential basis.

About $150 million of profit raise from midpoint to midpoint. And it's coming both with power and renewables contributing to the rates about a third of that is from the second quarter performance and power driven by the strength of the services business and about two thirds from renewables. In the second half of 2023 with improvement in both onshore and grid onshore mainly because of the backlog margins improving and in grade from volume and productivity. So good progress in both businesses year over year and on a sequential basis.

And it's coming both with power and renewables contributing to the rates about a third of that is from the second quarter performance and power driven by the strength of the services business and about two thirds from renewables. In the second half of 2023 with improvement in both onshore and grid onshore mainly because of the backlog margins improving and in grade from volume and productivity. So good progress in both businesses year over year and on a sequential basis.

In the second half of 2023 with improvement in both onshore and grid onshore mainly because of the backlog margins improving and in grade from volume and productivity. So good progress in both businesses year over year and on a sequential basis.

Our next question comes from Robert Spingarn with Melius research. Good morning, everyone. Good morning, Rob. Larry maybe on the product development side, perhaps a little high level, but Eric. Airbus has said that in a $2 2500 as a matter of when. And not if. And they've also openly talked about the desire to add a second engine to the family and so given that that aircraft would directly compete against the Max eight do you feel the need to get the leap one b onto the <unk> hundred 20 family. Robert I thought your multi series. Coverage on that specific topic and how the two air framers are going to play out their narrow body product strategy here really captured well the critical questions that we're all wrestling with. As you probably can. Respect. Were in deep with both of our airframe or customers relative to our own product roadmap and technology roadmap for that matter I E rise. And how we can work together as they evolve their own product strategy. So specifically to the 800 2500.

Good morning, everyone.

Good morning, Rob.

Larry maybe on the product development side, perhaps a little high level, but Eric.

Airbus has said that in a $2 2500 as a matter of when.

And not if.

And they've also openly talked about the desire to add a second engine to the family and so given that that aircraft would directly compete against the Max eight do you feel the need to get the leap one b onto the <unk> hundred 20 family.

Robert I thought your multi series.

Coverage on that specific topic and how the two air framers are going to play out their narrow body product strategy here really captured well the critical questions that we're all wrestling with. As you probably can. Respect. Were in deep with both of our airframe or customers relative to our own product roadmap and technology roadmap for that matter I E rise. And how we can work together as they evolve their own product strategy. So specifically to the 800 2500.

As you probably can. Respect. Were in deep with both of our airframe or customers relative to our own product roadmap and technology roadmap for that matter I E rise. And how we can work together as they evolve their own product strategy. So specifically to the 800 2500.

Respect. Were in deep with both of our airframe or customers relative to our own product roadmap and technology roadmap for that matter I E rise. And how we can work together as they evolve their own product strategy. So specifically to the 800 2500.

Were in deep with both of our airframe or customers relative to our own product roadmap and technology roadmap for that matter I E rise. And how we can work together as they evolve their own product strategy. So specifically to the 800 2500.

And how we can work together as they evolve their own product strategy. So specifically to the 800 2500.

We will keep our comments. Private we'll have that conversation with Guillaume and his team. But obviously as we evolve our product portfolio, we want to be on all the critical platforms that matter in the decades ahead. Our next question comes from the line of Deane Dray with RBC capital markets. Thank you good morning, everyone, Hey, Dan Good morning, Dan and first. First of all thank you to Carolina and wish you all the best. Thank you Dan. Larry I know you talked about the renewable orders that were booked in terms of profitability, but can you can. Can you generalize a bit and talk about the range of customer modifications within these orders that were booked that had been a problem before. Too much variability versus <unk>.

Private we'll have that conversation with Guillaume and his team.

But obviously as we evolve our product portfolio, we want to be on all the critical platforms that matter in the decades ahead.

Our next question comes from the line of Deane Dray with RBC capital markets.

Thank you good morning, everyone, Hey, Dan Good morning, Dan and first.

First of all thank you to Carolina and wish you all the best.

Thank you Dan.

Larry I know you talked about the renewable orders that were booked in terms of profitability, but can you can.

Can you generalize a bit and talk about the range of customer modifications within these orders that were booked that had been a problem before.

Too much variability versus <unk>.

<unk> customers to a more standardized offering that that readout in these orders. Dean. We should have mentioned that earlier, thanks for Rob for asking you about that. Part of what we've tried to do in addition to our selectivity effort in terms of the types of. Opportunities that we pursue is also make sure that frankly, we are driving more standardized offerings I would say that we are seeing probably more in the order book than in the P&L today. The positive effect of that I would also say coupled with that is. It's just a frankly, a more conservative forward estimation of costs.

Dean.

We should have mentioned that earlier, thanks for Rob for asking you about that.

Part of what we've tried to do in addition to our selectivity effort in terms of the types of.

Opportunities that we pursue is also make sure that frankly, we are driving more standardized offerings I would say that we are seeing probably more in the order book than in the P&L today.

The positive effect of that I would also say coupled with that is.

It's just a frankly, a more conservative forward estimation of costs.

And that that will play out over time, we will see how conservative those estimates are. But I know that the team for the last several quarters is really not that too far into the future vis vis the cost position that we anticipate having when we deliver on this. Growing backlog, so you put all that together. In addition to the quality improvements that we put across. <unk>. Sharply reduced cost structure that we have in the business. I think that's why we've got particularly in onshore wind the optimism we do about the back half. And profitability in 2024. Our next question comes from Jeffrey Sprague with vertical research partners. Thank you good morning, everyone, Hey, Jeff Good morning, Jeff. Hey, good morning, just a follow up on renewables baby.

But I know that the team for the last several quarters is really not that too far into the future vis vis the cost position that we anticipate having when we deliver on this.

Growing backlog, so you put all that together.

In addition to the quality improvements that we put across.

<unk>.

Sharply reduced cost structure that we have in the business. I think that's why we've got particularly in onshore wind the optimism we do about the back half. And profitability in 2024. Our next question comes from Jeffrey Sprague with vertical research partners. Thank you good morning, everyone, Hey, Jeff Good morning, Jeff. Hey, good morning, just a follow up on renewables baby.

I think that's why we've got particularly in onshore wind the optimism we do about the back half. And profitability in 2024. Our next question comes from Jeffrey Sprague with vertical research partners. Thank you good morning, everyone, Hey, Jeff Good morning, Jeff. Hey, good morning, just a follow up on renewables baby.

And profitability in 2024. Our next question comes from Jeffrey Sprague with vertical research partners. Thank you good morning, everyone, Hey, Jeff Good morning, Jeff. Hey, good morning, just a follow up on renewables baby.

Our next question comes from Jeffrey Sprague with vertical research partners. Thank you good morning, everyone, Hey, Jeff Good morning, Jeff. Hey, good morning, just a follow up on renewables baby.

Thank you good morning, everyone, Hey, Jeff Good morning, Jeff. Hey, good morning, just a follow up on renewables baby.

Hey, good morning, just a follow up on renewables baby.

Just to get your thoughts on the trajectory of free cash flow. Kind of stuck with the same language right flat to improving but I am wondering if inside that. Given. The better trajectory of profitability apparently. Well it looks like some decent orders that should be coming with deposits attached if in fact the <unk>. Free cash flow outlook for renewables has improved for the year and if you have anything to share about how you view 2024 playing out. Thank you. So let me start Jeff with 2023 first so on renewables four for full year in the current construct what you'll find is kind of. Flattish to last year 150 ish million positive from from earnings right. <unk>. Huge growth in earnings minus the minus the charge that we took last year and good progress on on onshore wind here, especially with the progress payments grid. Grids doing well, but it's coming up is getting offset by the offshore from absence of progress payments and the way the contract assets are playing out. So overall renewables think of that as kind of flattish year over year portfolio.

Kind of stuck with the same language right flat to improving but I am wondering if inside that.

Given.

The better trajectory of profitability apparently.

Well it looks like some decent orders that should be coming with deposits attached if in fact the <unk>.

Free cash flow outlook for renewables has improved for the year and if you have anything to share about how you view 2024 playing out.

Thank you. So let me start Jeff with 2023 first so on renewables four for full year in the current construct what you'll find is kind of. Flattish to last year 150 ish million positive from from earnings right. <unk>. Huge growth in earnings minus the minus the charge that we took last year and good progress on on onshore wind here, especially with the progress payments grid. Grids doing well, but it's coming up is getting offset by the offshore from absence of progress payments and the way the contract assets are playing out. So overall renewables think of that as kind of flattish year over year portfolio.

So let me start Jeff with 2023 first so on renewables four for full year in the current construct what you'll find is kind of. Flattish to last year 150 ish million positive from from earnings right. <unk>. Huge growth in earnings minus the minus the charge that we took last year and good progress on on onshore wind here, especially with the progress payments grid. Grids doing well, but it's coming up is getting offset by the offshore from absence of progress payments and the way the contract assets are playing out. So overall renewables think of that as kind of flattish year over year portfolio.

Flattish to last year 150 ish million positive from from earnings right.

<unk>. Huge growth in earnings minus the minus the charge that we took last year and good progress on on onshore wind here, especially with the progress payments grid. Grids doing well, but it's coming up is getting offset by the offshore from absence of progress payments and the way the contract assets are playing out. So overall renewables think of that as kind of flattish year over year portfolio.

Huge growth in earnings minus the minus the charge that we took last year and good progress on on onshore wind here, especially with the progress payments grid. Grids doing well, but it's coming up is getting offset by the offshore from absence of progress payments and the way the contract assets are playing out. So overall renewables think of that as kind of flattish year over year portfolio.

Grids doing well, but it's coming up is getting offset by the offshore from absence of progress payments and the way the contract assets are playing out. So overall renewables think of that as kind of flattish year over year portfolio.

And then if you go to power. The fact is it will power free cash could be slightly down year over year. Gain positive earnings from from cash, but it is getting pressured with these contract assets because as our revenue growth happens we burn through the contract assets that are sitting on our books because the the revenue exceeds the billings. So that's what's happening on the power types. So it's good for the business the revenue growth is happening the outer. So that is helping its driving good revenue growth, but has a temporary negative impact on free cash now obviously as we get into 2020 forward, we'll provide more guidance as we get towards the end of the year into next year, but we do expect strong sequential improvement year over year and lower business overall. Our next question comes from Nigel Coe with Wolfe Research.

The fact is it will power free cash could be slightly down year over year.

Gain positive earnings from from cash, but it is getting pressured with these contract assets because as our revenue growth happens we burn through the contract assets that are sitting on our books because the the revenue exceeds the billings. So that's what's happening on the power types. So it's good for the business the revenue growth is happening the outer.

So that is helping its driving good revenue growth, but has a temporary negative impact on free cash now obviously as we get into 2020 forward, we'll provide more guidance as we get towards the end of the year into next year, but we do expect strong sequential improvement year over year and lower business overall.

Our next question comes from Nigel Coe with Wolfe Research.

And. Congratulations and good luck. So I just wonder if maybe we could. Just dive into maybe <unk>. And look at some of the moving pieces for. Both earnings and free cash flow and on top of that. $1 billion charge on the Postbank is that just writing down the remaining. Net asset value in that business, no cash and does that cleanup. Litigation there thanks. Yeah, so on Poland, Nigel I didn't fully follow your third quarter question. So let's come back to that but let me start with Poland. So we've been working to simplify the legacy liabilities and it is a meaningful step forward in that in that direction prior to spin we. Had approving a settlement program and that significantly reduces our exposure to future losses and as Kathleen said in our prepared remarks, there is no incremental GE cash from taking this reserve as the bank has adequate cash balances. So we feel good to get this as much as we can behind US obviously the situation is. The walgreen, but at this point, it's a really good step forward as we as we clean up and simplify all the legacy liabilities and the <unk>.

Congratulations and good luck.

So I just wonder if maybe we could. Just dive into maybe <unk>.

Just dive into maybe <unk>.

And look at some of the moving pieces for.

Both earnings and free cash flow and on top of that.

$1 billion charge on the Postbank is that just writing down the remaining.

Net asset value in that business, no cash and does that cleanup.

Litigation there thanks.

Yeah, so on Poland, Nigel I didn't fully follow your third quarter question. So let's come back to that but let me start with Poland. So we've been working to simplify the legacy liabilities and it is a meaningful step forward in that in that direction prior to spin we. Had approving a settlement program and that significantly reduces our exposure to future losses and as Kathleen said in our prepared remarks, there is no incremental GE cash from taking this reserve as the bank has adequate cash balances. So we feel good to get this as much as we can behind US obviously the situation is. The walgreen, but at this point, it's a really good step forward as we as we clean up and simplify all the legacy liabilities and the <unk>.

Had approving a settlement program and that significantly reduces our exposure to future losses and as Kathleen said in our prepared remarks, there is no incremental GE cash from taking this reserve as the bank has adequate cash balances. So we feel good to get this as much as we can behind US obviously the situation is. The walgreen, but at this point, it's a really good step forward as we as we clean up and simplify all the legacy liabilities and the <unk>.

So we feel good to get this as much as we can behind US obviously the situation is. The walgreen, but at this point, it's a really good step forward as we as we clean up and simplify all the legacy liabilities and the <unk>.

The walgreen, but at this point, it's a really good step forward as we as we clean up and simplify all the legacy liabilities and the <unk>.

<unk> question was just guide just how we think about <unk> guide overall, yeah, so on third quarter. We expect high single digit revenue growth in the quarter. And then EPS range off about 45% to 55. With <unk>. Sequential profit growth in. <unk> bought <unk>. Most base and in renewables. And we will see a pretty strong growth in power in the third quarter on profit and we expect the margins to go up three to four points on on power and if you look at the EPS that we provided the range that we're providing a 45% to 55, that's about <unk>, what we did last year, even if you exclude the charge so it's a significant.

We expect high single digit revenue growth in the quarter.

And then EPS range off about 45% to 55.

With <unk>.

Sequential profit growth in.

<unk> bought <unk>.

Most base and in renewables.

And we will see a pretty strong growth in power in the third quarter on profit and we expect the margins to go up three to four points on on power and if you look at the EPS that we provided the range that we're providing a 45% to 55, that's about <unk>, what we did last year, even if you exclude the charge so it's a significant.

<unk> from that and for aerospace going back all the way to prior questions profit will be up sequentially, but the margin rates could be down slightly given the majority of the first half to second half increase is coming from commercial OE. And then renewables will continue to see sequential improvement given onshore wind and grid performance and then as I said power given those the outage activity in the third third quarter, we do expect. Good improvement there. And free cash and free cash kind of flat to up slightly in the quarter with earnings growth and working capital reduction offsetting the <unk> headwinds. Our next question. Comes from Andrew Kaplowitz with Citi. Good morning, everyone and thanks for your help handicap. Thank you could you give us a little more color into the improvement you are seeing in your defense business. He talked about orders more than doubling revenue was up 31% defense growth in profitability really turned the corner for you guys and how do we think about its contribution to growth and margin over the next couple of quarters and into 'twenty four I know you said that.

And then renewables will continue to see sequential improvement given onshore wind and grid performance and then as I said power given those the outage activity in the third third quarter, we do expect.

Good improvement there.

And free cash and free cash kind of flat to up slightly in the quarter with earnings growth and working capital reduction offsetting the <unk> headwinds. Our next question. Comes from Andrew Kaplowitz with Citi. Good morning, everyone and thanks for your help handicap. Thank you could you give us a little more color into the improvement you are seeing in your defense business. He talked about orders more than doubling revenue was up 31% defense growth in profitability really turned the corner for you guys and how do we think about its contribution to growth and margin over the next couple of quarters and into 'twenty four I know you said that.

Our next question. Comes from Andrew Kaplowitz with Citi. Good morning, everyone and thanks for your help handicap. Thank you could you give us a little more color into the improvement you are seeing in your defense business. He talked about orders more than doubling revenue was up 31% defense growth in profitability really turned the corner for you guys and how do we think about its contribution to growth and margin over the next couple of quarters and into 'twenty four I know you said that.

Comes from Andrew Kaplowitz with Citi. Good morning, everyone and thanks for your help handicap. Thank you could you give us a little more color into the improvement you are seeing in your defense business. He talked about orders more than doubling revenue was up 31% defense growth in profitability really turned the corner for you guys and how do we think about its contribution to growth and margin over the next couple of quarters and into 'twenty four I know you said that.

Good morning, everyone and thanks for your help handicap. Thank you could you give us a little more color into the improvement you are seeing in your defense business. He talked about orders more than doubling revenue was up 31% defense growth in profitability really turned the corner for you guys and how do we think about its contribution to growth and margin over the next couple of quarters and into 'twenty four I know you said that.

Thank you could you give us a little more color into the improvement you are seeing in your defense business. He talked about orders more than doubling revenue was up 31% defense growth in profitability really turned the corner for you guys and how do we think about its contribution to growth and margin over the next couple of quarters and into 'twenty four I know you said that.

You spent at least high single digit growth for defense, but to see defense now have an extended runway for growth. Andy maybe I'll start. We indicated in our prepared remarks, and we I think we have through the last several quarters. Demand is not our fundamental challenge in the defense Arena. Throughput is. And the supply chain challenges, we've talked about everyone talks about certainly apply to defense I think we've had some particular issues. That have challenged us, especially so with the first quarter numbers. We're really encouraged by what we have seen recently not only with the T 700, but with a host of platforms. Where our material flow in our own facilities is better we are improving yields and a number of key operations that allows that flow too to take place. And we talked a little bit about <unk> plan for every part how that helps us implement pull in turn improve deliveries. So our signals to not only our internal supply base, but also our external supply base are better and more clear we're not just trying to work against. Past due but really targeting what we need when we needed and that is in turn I think had some early impact here.

Andy maybe I'll start.

We indicated in our prepared remarks, and we I think we have through the last several quarters.

Demand is not our fundamental challenge in the defense Arena.

Throughput is.

And the supply chain challenges, we've talked about everyone talks about certainly apply to defense I think we've had some particular issues.

That have challenged us, especially so with the first quarter numbers.

We're really encouraged by what we have seen recently not only with the T 700, but with a host of platforms. Where our material flow in our own facilities is better we are improving yields and a number of key operations that allows that flow too to take place. And we talked a little bit about <unk> plan for every part how that helps us implement pull in turn improve deliveries. So our signals to not only our internal supply base, but also our external supply base are better and more clear we're not just trying to work against. Past due but really targeting what we need when we needed and that is in turn I think had some early impact here.

Where our material flow in our own facilities is better we are improving yields and a number of key operations that allows that flow too to take place. And we talked a little bit about <unk> plan for every part how that helps us implement pull in turn improve deliveries. So our signals to not only our internal supply base, but also our external supply base are better and more clear we're not just trying to work against. Past due but really targeting what we need when we needed and that is in turn I think had some early impact here.

And we talked a little bit about <unk> plan for every part how that helps us implement pull in turn improve deliveries. So our signals to not only our internal supply base, but also our external supply base are better and more clear we're not just trying to work against. Past due but really targeting what we need when we needed and that is in turn I think had some early impact here.

Past due but really targeting what we need when we needed and that is in turn I think had some early impact here.

And to the extent that we're able to do that do that. Productively and we've certainly seen I think improvements. Not only in traditional material price cost, but also beginning to see some labor productivity improvements all of that accrues to our good but as long as we're able to continue to drive. This this output level, we'll see that high single digit top line number and in turn the. The goodness that will follow from a margin and from a cash perspective. Raul anything you'd add there nobody I think you covered it I think it's good to see the recovery happening in the in the second half in the second quarter kind of puts us back on track for the full year and. We are seeing.

Productively and we've certainly seen I think improvements.

Not only in traditional material price cost, but also beginning to see some labor productivity improvements all of that accrues to our good but as long as we're able to continue to drive. This this output level, we'll see that high single digit top line number and in turn the.

The goodness that will follow from a margin and from a cash perspective.

Raul anything you'd add there nobody I think you covered it I think it's good to see the recovery happening in the in the second half in the second quarter kind of puts us back on track for the full year and.

We are seeing.

Good demand and good improvement in year over year delivery. So I expect a good good half. In the back half of the year. Our next question comes from the line of Joe Ritchie with Goldman Sachs. Hey, good morning, guys in the Carolina. Thank you for all the help throughout the years. Thank you thanks, Joe. So what will really my question congrats on all the progress youre, making cleaning up the balance sheet with debt precedents and the public markets announcement today I'm just curious from this point forward how are you thinking about capital allocation pre spend. And then any color that you can give us on. Just the progress on the spin I know you said early 2024, but just any other hurdles that you see from here. From here to there. Joe I would say that there really isn't. Any change in our perspective this morning with respect to the spend and the capital allocation decisions that will take between now and then. We've talked about Renova launching sometime early next year. That is still very much the case today, we've talked about that really being a function of their performance not necessarily our readiness.

In the back half of the year.

Our next question comes from the line of Joe Ritchie with Goldman Sachs.

Hey, good morning, guys in the Carolina. Thank you for all the help throughout the years.

Thank you thanks, Joe.

So what will really my question congrats on all the progress youre, making cleaning up the balance sheet with debt precedents and the public markets announcement today I'm just curious from this point forward how are you thinking about capital allocation pre spend.

And then any color that you can give us on.

Just the progress on the spin I know you said early 2024, but just any other hurdles that you see from here. From here to there. Joe I would say that there really isn't. Any change in our perspective this morning with respect to the spend and the capital allocation decisions that will take between now and then. We've talked about Renova launching sometime early next year. That is still very much the case today, we've talked about that really being a function of their performance not necessarily our readiness.

From here to there. Joe I would say that there really isn't. Any change in our perspective this morning with respect to the spend and the capital allocation decisions that will take between now and then. We've talked about Renova launching sometime early next year. That is still very much the case today, we've talked about that really being a function of their performance not necessarily our readiness.

Joe I would say that there really isn't. Any change in our perspective this morning with respect to the spend and the capital allocation decisions that will take between now and then. We've talked about Renova launching sometime early next year. That is still very much the case today, we've talked about that really being a function of their performance not necessarily our readiness.

Any change in our perspective this morning with respect to the spend and the capital allocation decisions that will take between now and then. We've talked about Renova launching sometime early next year. That is still very much the case today, we've talked about that really being a function of their performance not necessarily our readiness.

We've talked about Renova launching sometime early next year. That is still very much the case today, we've talked about that really being a function of their performance not necessarily our readiness.

That is still very much the case today, we've talked about that really being a function of their performance not necessarily our readiness.

Because. The teams that are focused on the separation work had I think real success with healthcare. Our rerunning that playbook here and are exactly where we would want to be in the middle of July . So as we look forward again, I think we're really encouraged by what we've seen in the first half results and in the second half outlook still work to do right. There is a negative operating loss there that none of us feel great about. What we've said is the way, we'll define winning as sequential improvement business by business. And what we've seen in onshore and grid I think we can all be quite quite proud of with respect to capital allocation job. One remains a successful standup of all three of these companies and while you've seen us continue to make progress on some of the specific initiatives like the monetization of the Aercap stake. Likewise with with Health care, you mentioned the perhaps thank you.

The teams that are focused on the separation work had I think real success with healthcare.

Our rerunning that playbook here and are exactly where we would want to be in the middle of July .

So as we look forward again, I think we're really encouraged by what we've seen in the first half results and in the second half outlook still work to do right. There is a negative operating loss there that none of us feel great about.

What we've said is the way, we'll define winning as sequential improvement business by business.

And what we've seen in onshore and grid I think we can all be quite quite proud of with respect to capital allocation job. One remains a successful standup of all three of these companies and while you've seen us continue to make progress on some of the specific initiatives like the monetization of the Aercap stake.

Likewise with with Health care, you mentioned the perhaps thank you.

Even the well. You put all that together, we're very much going to be in a position from a balance sheet perspective to not only launch, but then allow each of the respective boards at aerospace and <unk> to <unk>. <unk> the contours of our capital allocation policy fit for each business so that. That may be a little a little boring, perhaps here in the near term, but this team is hyper focused on what our overarching priority is over the next several quarters and that is the successful spin of GE <unk> and successful standup of GE aerospace, whereas we have time for one last quick question. This question will come from the line of Chris Snyder with UBS. I appreciate the time just wanted to ask on renewables. Revenue was up 12% in the first half of the year and with the full year guidance, calling for high single digit revenue growth.

You put all that together, we're very much going to be in a position from a balance sheet perspective to not only launch, but then allow each of the respective boards at aerospace and <unk> to <unk>.

<unk> the contours of our capital allocation policy fit for each business so that.

That may be a little a little boring, perhaps here in the near term, but this team is hyper focused on what our overarching priority is over the next several quarters and that is the successful spin of GE <unk> and successful standup of GE aerospace, whereas we have time for one last quick question.

This question will come from the line of Chris Snyder with UBS.

I appreciate the time just wanted to ask on renewables.

Revenue was up 12% in the first half of the year and with the full year guidance, calling for high single digit revenue growth.

And I guess, implying like a fall down to low singles in the back half of the year can you just maybe talk about what's driving that because it doesn't seem to jive with orders up well over 100% for the first half. Thank you. So the orders don't help much to see or Chris. Chris I mean, thats, mainly those revenues those orders will kind of play out over. Over 24%, even 25, so and what you see between the first half growth higher in the second half go to just basically project timing. It just a question of which projects are getting executed and how those projects. Projects play out so but again, it's good progress. I feel better about the about the year raising guidance on renewables on revenue growth. So it's good progress and the orders that would be when the orders are obviously very very strong and that helps 'twenty four 'twenty five. Thanks, Rahul Larry any final comments. Steve. Thank you no I would say simply to close a strong first half in 2023. And frankly I've never been more confident in our path ahead as we prepare to launch both GE aerospace Angie Renova. Thanks to everybody for your time today and your investment in support of our company.

So the orders don't help much to see or Chris.

Chris I mean, thats, mainly those revenues those orders will kind of play out over.

Over 24%, even 25, so and what you see between the first half growth higher in the second half go to just basically project timing. It just a question of which projects are getting executed and how those projects.

Projects play out so but again, it's good progress.

I feel better about the about the year raising guidance on renewables on revenue growth. So it's good progress and the orders that would be when the orders are obviously very very strong and that helps 'twenty four 'twenty five. Thanks, Rahul Larry any final comments. Steve. Thank you no I would say simply to close a strong first half in 2023. And frankly I've never been more confident in our path ahead as we prepare to launch both GE aerospace Angie Renova. Thanks to everybody for your time today and your investment in support of our company.

Thanks, Rahul Larry any final comments. Steve. Thank you no I would say simply to close a strong first half in 2023. And frankly I've never been more confident in our path ahead as we prepare to launch both GE aerospace Angie Renova. Thanks to everybody for your time today and your investment in support of our company.

Steve. Thank you no I would say simply to close a strong first half in 2023. And frankly I've never been more confident in our path ahead as we prepare to launch both GE aerospace Angie Renova. Thanks to everybody for your time today and your investment in support of our company.

And frankly I've never been more confident in our path ahead as we prepare to launch both GE aerospace Angie Renova. Thanks to everybody for your time today and your investment in support of our company.

Okay. Thank you ladies and gentlemen. This concludes today's conference. Thank you for participating you may now disconnect.

Thank you ladies and gentlemen. This concludes today's conference. Thank you for participating you may now disconnect.