Q4 2024 General Electric Co Earnings Call
Yeah.
Speaker Change: Good day, ladies and gentlemen, and welcome to the G E Aerospace fourth quarter 2024 earnings Conference call.
At this time all participants are in a listen only mode.
Lisa: My name is Lisa and I will be your conference coordinator today.
Lisa: If you've experienced issues with the webcast slides refreshing or there appears to be delays in the flight advancement. Please hit a five on your keyboard to refresh.
Lisa: As a reminder, this conference is being recorded.
Lisa: I would now like to turn the program over to your host for today's conference Blair Sure head of Investor Relations. Please proceed.
Speaker Change: Thanks, Liz welcome to G E Aerospace's fourth quarter and full year 2024 earnings call.
I'm joined by Chairman and CEO, Larry Culp, and CFO Rahul Guy.
Speaker Change: Many 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.
Speaker Change: As described in our SEC filings and web site those elements may change as the world changes.
Speaker Change: <unk>, Larry and Rahul consistent with prior quarters, we will speak to total company and corporate financial results and guidance today on a non-GAAP basis now over to Larry.
Speaker Change: Later, thank you and good.
Speaker Change: Everyone.
Speaker Change: Head of Investor Relations that has a nice ring to it Blair.
Speaker Change: Hope everybody saw our announcement last week relative to Blair's promotion.
Speaker Change: He is excited we're excited.
Speaker Change: 2024 was the year for the history books at GE Aerospace.
Speaker Change: In April we became a standalone public company the.
Speaker Change: The culmination of Ge's multiyear transformation.
Speaker Change: Nothing has been more front and center and our purpose.
Speaker Change: Inventing the future of flight lifting people up and bringing them home safely.
Speaker Change: Those last four words remain our top priority with nearly a million passengers in flight at this very moment with our technology under wing.
Speaker Change: We launched flight deck, our proprietary lean operating model to better serve our customers.
Speaker Change: Our relentless focus on safety quality delivery and cost in that order.
Speaker Change: Seeing our teams in action through the year with flight deck for Malaysia to whales to Asheville and elsewhere.
Speaker Change: Truly was energizing.
Speaker Change: Commercial momentum continued as we signed several key services agreements and received orders for more than 4600 commercial and defense engines.
Speaker Change: And narrow bodies. This included American Airlines commitment for 85, New Boeing 737, Max Jets powered by our leap one b.
Speaker Change: Wide bodies, we were honored to add a new G E and X customer British Airways.
Speaker Change: And in Defense, we received an order from the Polish armed forces for 210 T 700 engines to power the 96, Boeing AAV six or E. Apache Guardian helicopters.
Speaker Change: To close the year, we received certification I believe one eight HPT durability kit.
Speaker Change: Combined with the three prior durability enhancements that are performing well in the field.
Speaker Change: It's designed to increase lead time on wing by more than twofold current levels and achieve parity.
Speaker Change: With the CFM 56 as performance today.
Speaker Change: Just this week in fact, we shipped our first retrofit engines to customers with the new hardware.
Speaker Change: It's also easier to produce supporting our output trajectory going forward.
Speaker Change: At the same time, we have advanced significant technology milestones that will propel GE aerospace into the future.
Speaker Change: Our rise program with CFM completed more than 250 tests.
Speaker Change: On our way to developing a full scale open fan engine.
We recently announced that in collaboration with Boeing NASA and the Oak Ridge National Laboratory, we will model the integration of an open fan engine design on an aircraft wing.
Speaker Change: And our defense team successfully demonstrated a hybrid electric propulsion system rated at one megawatt with the U S. Army. This represents a meaningful increase in power generation, enabling us to advance hybrid electric propulsion applications.
Speaker Change: But perhaps more important than what we accomplished in 2024 is how we did it.
Speaker Change: And my Thanks. This morning to go out to our entire team for their unwavering commitment to delivering for our customers.
Speaker Change: <unk> aerospace delivered a standout year financially.
Speaker Change: With revenue up double digits profit up $1 7 billion and free cash flow of $1 3 billion.
Speaker Change: And we've been a strong surpassing our most recent guide.
Speaker Change: In the fourth quarter.
Speaker Change: Robust demand continued.
Speaker Change: Orders were up 46% and revenue grew 16% with double digit growth in services and equipment for both orders and revenue.
Speaker Change: Profit was up nearly 50% and EPS more than doubled.
Speaker Change: Free cash flow was up over 20% with conversion above 100%.
Speaker Change: At commercial engines and services, our fourth quarter orders were up 50% revenue was up 19% and profit increased 44% while deliveries progressed.
Speaker Change: And for the full year demand remained robust with services orders up 30% total revenue up double digits in profit up 25% to $7 1 billion.
Speaker Change: In defense in propulsion technologies fourth quarter orders were up 22% and defense units nearly doubled sequentially.
Speaker Change: For the full year revenue was up 6% and profit increased 17% to $1 1 billion.
Speaker Change: Looking ahead to 2025, we're maintaining this momentum as we aim to deliver another year of substantial revenue EPS and cash growth.
Speaker Change: We expect departures growth of mid single digits and increased military spending.
Speaker Change: This support solid low double digit revenue growth, including growth in CES and DPT.
Speaker Change: We expect profit in the range of $7 8 billion to $8 2 billion.
Speaker Change: This combined with a lower share count will translate to EPS in the range of $5 10.
Speaker Change: To $5 45.
Up 15% at the midpoint.
Speaker Change: For free cash flow, we expect to generate six three.
Speaker Change: To $6 8 billion with conversion remaining robust above 100%.
Speaker Change: And given the strength of our balance sheet, we're increasing our share repurchases to $7 billion and planted raise our dividend by 30% subject of course to board approval.
Speaker Change: Overall GE aerospace is I believe an exceptional franchise with a tremendous financial profile.
Speaker Change: Stepping back.
Speaker Change: Between 2023, and 2025, taking the midpoint of our guide we expect to grow profit to $5 billion.
Speaker Change: Free cash flow nearly $2 billion over this two year period.
Speaker Change: Today, we're focused on keeping our customers fleets flying and delivering on our new engine backlog.
Speaker Change: Our our team is using flight deck tackle supply chain constraints head on.
Speaker Change: From the first half to the second half of 2024, we delivered meaningful improvement as material input increased 26% across our priority supplier sites.
Speaker Change: This in turn supported.
Speaker Change: CES services revenue growth of 17%.
Speaker Change: And engine unit growth of 18% with defense and commercial both up double digits.
Speaker Change: Including leap up 12%.
Speaker Change: We're encouraged by our progress more recently in the fourth quarter.
Speaker Change: <unk> services revenue increased 12% year over year supported by expanded shop visit work scope and spare parts growth.
Speaker Change: But this was lighter than we expected due to internal lower internal shop visit volume given material constraints.
Speaker Change: Total engine units improved up 3% with defense up 20%.
Speaker Change: But commercial was roughly flat with leap down 5%.
Speaker Change: We will need to drive further sustainable improvements to meet 20 fives demand and this is exactly where flight deck is so important.
Speaker Change: Earlier last year, our priority supplier ship only half of their committed targets to us.
Today, Theyre shipping over 90% of the committed volume.
Speaker Change: At a recent joint Kaiser and with a priority supplier.
Speaker Change: We focused on eliminating waste.
<unk>, a 50% increase in output.
Speaker Change: 50%.
Speaker Change: And throughout 2024, we deployed over 550, <unk> supply chain and engineering resources into that same supply base demonstrating that we're at our best when we're operating as one team.
Speaker Change: Building off this momentum, we're bringing together our engineering and supply chain teams into one new organization technology and operations.
Muhammad Ali: Which will be led by Muhammad Ali.
With shared accountability across the full value chain. This cross functional team will enable faster problem solving to help improve deliveries.
Muhammad Ali: These actions combined with our close alignment on demand schedules will enable higher material inputs in 2025 and importantly beyond.
Muhammad Ali: Finally, we've expanded leap aftermarket capacity by approximately 40% in 2024. This will support the growing fleet of 3300 leap powered aircraft.
Muhammad Ali: With now 10000 engines in backlog.
Muhammad Ali: Here's how.
First we're eliminating waste and reducing turnaround time using flight deck.
Muhammad Ali: For example, our on wing support team redesigned the leap engine flow increasing output by 50% for the year is.
Muhammad Ali: This contributed to leave internal shop visit growth of more than 20% in the fourth quarter alone.
Muhammad Ali: Second we're investing more than $1 billion and our internal MRO facilities over the next five years.
Muhammad Ali: We're growing our repair technologies, which will help lower the cost of ownership and provide faster turnaround times.
Muhammad Ali: Our recently opened services technology acceleration center.
Here in Ohio will be a key enabler and deploying repairs across our global MRO network.
Muhammad Ali: And third we are strengthening our leap third party network.
Muhammad Ali: Last year five Premier MRO was completed around 10% of total leap shop visits.
Muhammad Ali: This is critical experience for them as their volume increases further in 2025.
Muhammad Ali: Overall, we are entering 2025 with a stronger foundation to service and deliver our engines faster with the highest possible levels of safety.
Muhammad Ali: And quality.
Muhammad Ali: Turning to slide seven.
Demand for our services and products remains robust highlighted by orders up 46% in the fourth quarter.
Muhammad Ali: At CES in narrow bodies.
Muhammad Ali: All Israel Airlines confirmed its commitment for $27 seven Max's with leap one.
Muhammad Ali: <unk> B engines under wing.
We've also extended service contracts.
Muhammad Ali: Contracts, including a 10 year engine maintenance agreement with fly Dubai for their CFM 56 powered aircraft.
Muhammad Ali: And notably the Airbus 321, XLR powered by our leap <unk> engines.
Muhammad Ali: <unk> its inaugural commercial long haul flight.
Muhammad Ali: Our engines are providing airlines with greater route flexibility and overall operational efficiency.
Muhammad Ali: In wide bodies, Royal Jordanian announced an order for <unk>.
Muhammad Ali: While spares to power their expanded Boeing 787 Dash nine fleet.
Muhammad Ali: And China Airlines also announced an agreement for 10, Boeing Triple seven nines with the GE Nymex underway.
Muhammad Ali: <unk>, we are building on our leading defense programs.
Muhammad Ali: We received orders under our contract with the U S Army valued up to $1 $1 billion for the continued production of <unk> 700 engines through 2029.
Muhammad Ali: The new seven hundreds will power the Sikorsky H 60, the bell each one and the Boeing H 64 platforms.
Muhammad Ali: In addition to expanding our extensive installed base, we're enhancing our customer solutions.
We signed an agreement to acquire Northstar aerospace a leading manufacturer of mission critical gears and shafts.
Northstar will be highly complementary to our <unk> aero business, providing a U S based presence in this market and adding new programs and capabilities to deliver complex flight critical parts.
Muhammad Ali: Stepping back I couldnt be prouder.
Muhammad Ali: About what we're building is GE aerospace as we advanced flight for today Tomorrow and the future.
Muhammad Ali: Over to you.
Speaker Change: Thank you Larry and good morning, everyone.
Speaker Change: We closed out 2024 with another strong quarter.
Speaker Change: Orders were up 46% with significant demand for both services and equipment.
Speaker Change: Revenue was up 16%.
Speaker Change: With growth in CES and DPT.
Speaker Change: Profit was $2 billion up 49%.
Speaker Change: Driven by services volume favor.
Speaker Change: A favorable mix and price.
Speaker Change: Margins were up 450 basis points to 21%.
Speaker Change: EPS of $1 and 32, <unk> more than doubled from profit growth and a reduced tax rate.
Speaker Change: Free cash flow was one and a half billion dollars up 21% from higher earnings.
Speaker Change: Working capital was a source primarily from long term service contract billings.
Speaker Change: While it accounts receivables increased days sales outstanding were down five days year over year.
Speaker Change: Given the ongoing material availability challenges inventory increased although at a lower rate than prior quarters.
For the year.
Speaker Change: Orders were up 32%, including services orders up 30%.
Speaker Change: The revenue was up 10% with growth in both segments.
Speaker Change: Profit increased 30%.
Speaker Change: Seven $3 billion with margins, expanding 330 basis points to 27%.
Driven by commercial services.
EPS increased 56% to $4 60.
Speaker Change: From significant profit growth, a lower tax rate and the absence of preferred dividend.
Speaker Change: Free cash flow was up almost 30% to $6 $1 billion with conversion over 120%.
Speaker Change: Taken together, we delivered significant growth across all key metrics, both in the quarter and the year.
Speaker Change: Looking closer at our businesses.
Speaker Change: <unk> would see yes.
Speaker Change: In the quarter orders were up 50% as services demand remains robust while equipment accelerated.
Speaker Change: Our recent wins build on our backlog of $154 billion with about 90% of that backlog in services.
Speaker Change: Revenue was up 19% with services up 12%.
Speaker Change: Driven by shop visit revenue higher spare parts and price.
Speaker Change: Internal shop visit revenue representing around 60% of services revenue grew double digits.
Speaker Change: Increased work scopes higher pricing and engine mix.
Speaker Change: More than offset shop visit volume that was down 3% due to material constraints.
Speaker Change: Spare parts revenue, representing roughly the other 40% was up from higher volume and price.
Equipment grew 48%.
Speaker Change: While we made progress supply chain constraints impacted total deliveries down, 2%, including leap down 5% for.
Speaker Change: For the year leap deliveries were down 10% in line with our latest expectations.
Speaker Change: Lower volume was more than offset by customer mix and price.
Speaker Change: In addition, given our growing fleet with high utilization, we caught up on spare engine deliveries to support airline fleet stability.
Speaker Change: Although the spare engine ratio was elevated in the fourth quarter overall leap LIFO program ratio to 2024 remains in low double digits.
Speaker Change: Profit was $2 $2 billion up 44%, our spare parts volume increased shop visit work scope mix and price more than offset inflation and investments.
Speaker Change: Margins expanded 490 basis points to 28, 2%.
Speaker Change: Overall <unk> delivered strong full year results with orders up 38% revenue up 13% and profit growing 25% to seven 1 billion.
Speaker Change: Margins expanded 250 basis points to 26, 2%.
Speaker Change: Moving to <unk>.
Speaker Change: Orders were up 22%.
Speaker Change: Primarily driven by defense and systems.
Speaker Change: Demand remains strong here as well with defense book to Bill of one <unk> for the quarter and the full year.
Speaker Change: Our backlog for the segment is now at $18 billion up more than $1 $5 billion year over year.
Speaker Change: Revenue grew 4%.
Speaker Change: Defense and systems revenue was up 6% driven by higher engine deliveries and price.
Speaker Change: Partially offset by lower services.
Speaker Change: Defense units were up 20% year over year with more than 90% quarter over quarter.
Speaker Change: Propulsion and additive technologies or <unk> grew 2%.
Speaker Change: As lower commercial volume at Aveo was more than offset by growth in other businesses.
Speaker Change: Profit was up 2% driven by improved pricing and productivity.
Speaker Change: Partially offset by investments in next Gen engines and inflation.
Speaker Change: Margins were down 20 basis points.
Speaker Change: Overall, a strong finish as full year orders were up 10% revenue grew 6% and profit was up 17% to $1 1 billion with margin expansion of 110 basis points.
Speaker Change: Our momentum corporate.
Speaker Change: We made substantial progress to ensure our operations reflect the needs of GE aerospace as a standalone company.
Speaker Change: Corporate costs, including eliminations was about $860 million for the year.
Eliminations increased by $100 million to approximately $417 million from higher internal volume in <unk>.
Excluding eliminations cost was down over a third grew roughly $400 million drew.
Speaker Change: Driven by lower functional expenses and higher interest income.
Speaker Change: We also fully exited our remaining stake in GE healthcare to this quarter.
Speaker Change: And for the year, we returned more than 100% for free cash flow to our shareholders, including $5 billion of share buyback and a dividend of around 30% of net income.
Speaker Change: Based on the strength of our performance and balance sheet GE aerospace is well positioned to compound shareholder returns for long term.
Speaker Change: Switching to our 2025 guidance.
Speaker Change: Starting with CES.
Speaker Change: We expect mid teens revenue growth for the segment.
Speaker Change: We are now expecting services to be up low double digits to mid teens.
Speaker Change: Up from our prior view of low double digits.
Speaker Change: At the midpoint, we expect internal shop visit revenue to be up from higher work scope improved pricing and high single digit shop visit volume growth.
Speaker Change: Which is pushed to the right from 2024.
Speaker Change: We continue to expect low double digit spare parts revenue growth from mid single digit air traffic growth and pricing.
Speaker Change: We expect equipment up high teens from growth in engine volume, including leap deliveries up 15% to 20% and pricing.
Speaker Change: More than offsetting negative engine mix.
Speaker Change: We expect seven six to $7 9 billion of profit at CES.
Speaker Change: Reflecting the benefit of services growth.
Speaker Change: This will be partially offset by the impact from increased R&D investments and higher <unk> in the second half of the year.
Speaker Change: We also expect lower spare engine ratio.
Speaker Change: And DPP, we expect mid to high single digits revenue growth.
Speaker Change: Increased defense unit and profit in the range of one one to $1 $3 billion.
Speaker Change: Higher defense deliveries.
Speaker Change: I, partially offset by self funded investments in the first half.
Speaker Change: Corporate costs are expected to be less than $1 billion.
Speaker Change: Eliminations I'd expect it to grow as internal volume growth.
Speaker Change: In total.
Speaker Change: We expect another year of low double digit revenue growth for the company with profit in the range of seven eight to $8 $2 billion.
Speaker Change: Up about $750 million or 10% at the midpoint over 2024.
Speaker Change: Turning to slide 12.
Speaker Change: We expect EPS to be in the range of $5 10 to $5 45.
Speaker Change: Up roughly 15% at the midpoint.
Speaker Change: About 80% of the improvement will be from higher profit.
Speaker Change: The balance will come through a reduction in the tax rate, which is expected to improve to below 20%.
Speaker Change: And the benefit from share repurchases, including the $5 billion executed in 2024.
Speaker Change: And an additional $7 billion expected in 2025.
Speaker Change: We expect to generate $6 three to $6 $8 billion of free cash flow.
Speaker Change: With year over year growth, primarily from higher earnings.
Speaker Change: Contributions from working capital and a DNA combined year over year will be more than offset by higher capex and cash tax payments.
Speaker Change: Overall, we expect another year of conversion that is solidly above 100%.
Speaker Change: Taken together G. Aerospace is poised for another year of growth ahead.
Speaker Change: Now I'll turn it back to you perfect. Thank you.
Speaker Change: 'twenty 'twenty four clearly was a strong first year forces GE Aerospace, we grew revenue earnings and cash significantly along with returning over $6 billion to shareholders.
Speaker Change: That performance was underpinned by our competitive advantages are.
Speaker Change: Our platforms are preferred by customers across the narrow body wide body and defense sectors.
Speaker Change: Our industry, leading services and technologies provide the highest levels of operational reliability, including greater efficiency time on wing and faster turnaround times.
Speaker Change: At the core of everything we do is safety quality delivery and outerwear.
Speaker Change: And we're focused on unrivaled customer service and flight support across the industries. Most extensive installed base with 70000 engines.
Speaker Change: Our breakthrough innovations in both commercial and defense paved the way for more sustainable flight.
Speaker Change: And flight deck, which connects our strategy to our results enables us to deliver and create exceptional value for our customers and our shareholders.
Speaker Change: We believe our path forward is clear.
Speaker Change: We are well positioned to deliver another year of substantial growth and deploy over 100% of our free cash flow to shareholders.
Speaker Change: Before we wrap our prepared remarks I'd like to take a moment to express our support for all of those impacted by the fires in southern California.
Seeing our CF six.
Speaker Change: CFM 56, and <unk> 700 engines powering many of the planes battling fires, we feel a deep connection to our commitment to safety.
Speaker Change: And hope that those buyers can be contained soon.
Speaker Change: Blair.
Speaker Change: Can we go to Q&A.
Speaker Change: 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 lives can you. Please open the line.
Speaker Change: Ladies and gentlemen, if you wish to ask a question. Please press star one one on your telephone.
Speaker Change: You wish to withdraw your question or your question has already been answered. Please press star one again.
Scott <unk>: Our first question comes from Scott <unk> with Deutsche Bank.
Scott: Hey, good morning.
Speaker Change: Good morning, Scott Rahul can you refresh us on what the 2025 guide is assuming with respect to leap OE profitability.
Speaker Change: And then when lethal we achieved breakeven.
Speaker Change: Do you foresee the profit trajectory flatlining from there or is it reasonable to think that leap OE.
Speaker Change: It could be a profit center on its own right as time goes on and you benefit from some of these recent pricing gains in operational efficiency.
Speaker Change: Yes.
Scott: Absolutely Scott So let me start and Larry can add obviously, it's been a really good year for leap overall I.
Speaker Change: I can start with.
Speaker Change: Answering your question that I can comment on the operational improvements that we've driven in leap. So first Scott it was a milestone year for leap leap services.
Speaker Change: Profitable in 2024.
Speaker Change: And the program becomes even breakeven in 2025.
Speaker Change: At OE following a year later in 2026 so.
Speaker Change: That was a product spectation that continues to be our expectation today.
Speaker Change: And as we look at leap how it performed during the ear the profitability of the program tended to be better than initial expectations from higher external spare parts volume better pricing lower warranty expenses as some of those fixes are going in and more shop visits than we had initially expected.
Speaker Change: Yeah.
Speaker Change: So that's our expectation and.
Speaker Change: The key milestone for 2025 is that our profitability and margins for that program out of getting better from increase in shop visits and higher external spare parts volume.
Speaker Change: So and the <unk> performance improves despite.
Speaker Change: More number of engines that would be going to ship and just to comment on the external services volume.
In 2024 shop visits external shop visits were just north of 10% and we expect that to increase to 15% in 2025.
Speaker Change: And on a sold basis the shop visits that we have sold about 25% of the shop visits are non ge's upfront shop visits and that will help future profitability.
Speaker Change: So overall listen at the program is on the right trajectory and as the program kind of breaks even this year. All you becomes profitable next year I think the services growth trajectory that the program hasn't been installed base.
Speaker Change: It's going to power the program. So we expected leap to be kind of.
Speaker Change: In CFM 56 levels by 2028, maybe CFM is performing a little bit better so, but that's the trajectory that the program is on that sometime in late towards the end part of this decade leap and CFM are delivering the same amount of profit for the company.
Speaker Change: You want to add here.
Speaker Change: I think you've covered you've covered the landscape, they're clearly much of what we've talked about Scott just already this morning with respect to managing the supply base.
Speaker Change: Sets us up, particularly as we think about the ramps with with leap.
Speaker Change: We would expect leap new units to be up 15% to 20% this year.
Speaker Change: More to come after that right so that that.
That installed base growth that aftermarket opportunity that Rahul was really talking about.
Speaker Change: Is really a function of what we're doing currently with the installed base excuse me the supply base that of course, coupled with the progress that we made with HPT.
Speaker Change: At the end of the year on the <unk> sets us up I think even more strongly in the marketplace and we know we know that the engine is performing well in the market.
Increase our share of cycles, what 300 basis points in 2024. So we have a lot of good things in front of US it's still many respects early days for Lee.
Speaker Change: Our next question comes from Myles Walton with Wolfe Research.
Myles Walton: Thanks, Good morning.
Speaker Change: Congrats player well deserved at the start of 'twenty four.
Speaker Change: You were looking for about $1 billion of operating profit growth and 25 versus 2020 for the new guidance for those you mentioned is $750 million of growth.
Speaker Change: I'm not oblivious to the fact that you blew away the 2024 base number but curious just as you look at that sequential climb to 25, what in the base profit of 24.
Speaker Change: Didn't translate into 25 thanks.
Myles Walton: So Myles listen if you step back and you look at the.
Myles Walton: Kind of the number that you alluded to we were sitting in March of 2020 for expecting.
Myles Walton: To get to about $7 2 billion down seven to $7 $3 billion of profit by the end of 2025 and that was up quite a building in a half billion six from where we ended.
Myles Walton: 2023, now as we sit here today.
Myles Walton: As Dan said in his prepared remarks, we're going to add about two and a half a billion dollars of profit in the two year period. So that's about a third better than what we have hot just nine months ago. So the business is performing extremely well now as you think about the 2025 profit call it $800 million year over year to a midpoint of 750 and bill.
Myles Walton: It would be at the high end.
Myles Walton: So first we spoke about the corporate elimination to up about $100 million from elimination of AR from higher volume.
Myles Walton: Volume. So that's one thing, but put that aside we expect CES profit will be up about $700 million at the midpoint.
Myles Walton: And the biggest driver of profit growth within CES is the drop through that we're getting from the services revenue that we expect to be up to about $3 billion up year over year at the midpoint of the guide.
Myles Walton: And we expect services margins to be to be flat, despite would leap getting to be a greater share of that services revenue as other things productivity pricing all of that is offsetting the leap a mix impact.
Myles Walton: And to offset the services within within CES will be the impact from OE about split 50 50 between the R&D step up and the increase in <unk> shipments.
Myles Walton: We expect <unk> to be about a couple of hundred million dollars of headwind.
Myles Walton: In 2025, as we ramped the number of engines that we are shipping and spare engine ratio was expected to come down gradually as well had an <unk> site. So that's the CES landscape in <unk> DPT listen given the growth in backlog I believe in the half so call it.
Myles Walton: Close to about 10% backlog growth in <unk>.
In 2024, we expect mid to high single digit revenue growth, that's going to translate into profit.
Myles Walton: And with margins expanding about 70 basis points at the midpoint of the guide so overall it should be a good year.
Myles Walton: And to get to the high end of the $1 billion that you referenced I think we just need services to be a little bit better and perform at the high end of the guidance.
Ron Epstein: Our next question comes from Ron Epstein with Bank of America.
Ron Epstein: Hey, Yeah. Good morning, good morning, Ron.
Ron Epstein: Question for you on the nine X when we think about that triple seven axis vacuum back in flight test.
Ron Epstein: There are other opportunities for that engine beyond the triple seven X.
Ron Epstein: Brian I would say that.
Ron Epstein: At this point in time, we're fully focused on health.
Speaker Change: Helping our friends in Seattle.
Speaker Change: Get this get this point launched so we're obviously proud to be underway, we think it's going to be a great wide body program over time.
Speaker Change: Delighted to see as you mentioned flight testing resume we started to ship engines to Boeing So we've got work to do clearly, but the customer feedback relative to that aircraft in that engine continues to be quite strong and we've got an early what 1000 engines now in backlog and I'd like to think that with the delays we've made good use.
Speaker Change: Of that time.
Speaker Change: of that time with respect to just additional testing, probably gonna end up being the most tested engine in our history, we're approaching 2,500 cycles. In fact, we've got a second dust test engine, critical in harsh and hot environments.
Speaker Change: underway, and we're already on our second iteration of HPT blades, let alone the CMC nozzle designs. So we're focused on that at the moment, but excited about that backlog and ultimately EIS.
Our next question comes from Sheila Kailou with Jeffreys.
Good morning Larry and Raul and congrats Blair.
Good morning.
Speaker Change: Good morning, guys. Maybe I wanted to focus back on CES margins in Q4, just given the performance was so stellar at 28 percent.
Speaker Change: And even on slower expected services growth, given the internal shop visit volume hasn't quite turned the corner. So when we think about the 2025 outlook, Raul, I know you talked about this a little bit.
Speaker Change: Services, you raised the guidance here from just one month ago to low to mid-teens. Can you talk about the moving pieces as you think about just the mix of spares, parts versus internal, and how the different engines are contributing to that? And maybe if you could just talk about the cadence throughout the year as well.
Speaker Change: All right, so let me start and obviously, if I don't hit anything, come back and make sure we answer the question.
Speaker Change: CES had a good quarter, better than what we had expected. Favorable services mix, Sheila, as you mentioned, the shopper's volume wasn't exactly where we needed it to be, but spare parts did better. And again, as we are trying to manage the supply chain challenges that we are encountering.
Speaker Change: Those parts are fungible and we kind of move them around every quarter to make sure that we are supporting our airline customers.
Speaker Change: So there's always a little bit of tension between external ship spare parts volume and internal shop visits so the mix skewers towards the you know mix skewed towards the the
the spare parts in the quarter.
Speaker Change: And then engine mix was favorable as well. As we said in our prepared remarks, we caught up on the spare engines that we had not delivered in the first three quarters.
Speaker Change: So we caught up here in the fourth quarter, but overall, we expect spare engine ratio for LEAP is, you know, 224 is in low double digits. So it'll gradually come down, but we're not expecting, you know, a steep drop off here. So as you think about 25, Sheila, within CES,
Speaker Change: You know, we do expect, you know, spare parts to remain strong here.
Speaker Change: Given where the external market is, we expect the departures to be up kind of bit single digits.
Speaker Change: then all the pricing changes that we implemented last year that they'll be thinking about the summer gets spare parts to be kind of upload double digits and the shop is at revenue we are expecting shop is at revenue to be up mid-teens
Speaker Change: And that's gonna come from high single-digit sharp as it volume growth, and you combine that with the work scopes that are increasing, be the wide-body programs like G90 going for the second sharp as it, NX is coming for the first sharp as it versus a quick turn earlier, and then LEAP. So work scopes are increasing, and then, you know, modest price increases baked into that service portfolio.
Speaker Change: So that's kind of the landscape of, you know, the CES revenue growth, and then that is going to drive the profit in response to Miles' question earlier. Now, we're going to come out of the gate strong here, Sheeva, you know, within CES especially.
And the primary driver for that is A, the 9X,
Speaker Change: shipments are more towards the back end of the year. But we are entering the year for spare parts with about 90% of that revenue in our backlog. So we'll have a strong quarter here to start with. In our spare part sales, we expect shop visits to grow as well. And then we had the CMR of over $200 million in one Q of last year. We're not expecting that to repeat.
Speaker Change: So we'll, you know, we'll start the year, you know, strongly on profit and revenue for the quarter for CES should be kind of in line with, you know, what we're expecting for full year.
Hopefully that answers the question, Sheila.
Speaker Change: Our next question comes from the line of Doug Harned with Bernstein.
Good morning. Thank you. Good morning, Doug.
Doug Harned: I want to just follow up a little more on the commercial services growth, because when you talk about low double-digit, the mid-teens next year, that's a little better than you were talking about before, or this year.
Doug Harned: Can you talk about where that's coming from? Because wide body versus narrow body, and then is the constraint, in other words, could you go higher if you can resolve these supply chain issues?
Doug, as you would imagine, it's a broad-based demand issue.
Doug Harned: strengthening that we see. Could we go higher? We've got work to do with the supply chain to execute on what Rahul just walked everybody through, but there is there is more
pent-up demand there, right? We've got the backlog.
Doug Harned: An unhelpful level of that is, in many respects, delinquent. So if we could continue.
to deliver the sequential improvements in inputs combined with the
I know we're making it in our own shops.
Doug Harned: I wouldn't say no, but we've got work to do to deliver what we just outlined.
Doug Harned: But again, it won't be a demand challenge for us in 2025, we believe. We don't want to take it all for granted. But given the environment, given the backlog, it really is about operational execution. That's where we're focused.
Our next question comes from Robert Stoller with Vertical Research.
Thank you.
Thanks so much, good morning. Good afternoon.
Speaker Change: Just a question on the LEAP, you're expecting 15 to 20% growth this year and Rahul said that you expect the spares ratio in that to come down. So looking at the remnant of those engines, how are you expecting the split to go between Airbus and Boeing in 2025?
Well, we don't get into that level of detail.
Speaker Change: publicly, but I think we are, as you would imagine, in frequent contact with
Speaker Change: all of our customers, particularly those two, vis-a-vis the intentions they have for 2025, I think we are well aligned to support both of them as they step up production this year.
Thank you.
Speaker Change: Thanks very much, and good morning. Good morning. I wanted to ask about the
Speaker Change: In terms of spares growth, you kind of talk about departures and price. One of the other things I'm kind of curious about is provisioning of third-party shops to do more elite maintenance over time. The degree to which that's happened, the degree to which that's still in front of us and affects kind of the spares.
Speaker Change: you know, the SPARES growth trajectory and, you know, maybe also the the CAPEX that you're doing and how you think over time, you know, that that plays into the amount of work that will be done internally versus externally.
Speaker Change: So Seth, let me start, and then you can jump in here.
Speaker Change: Obviously, as we're coming out of the gate here, most of the shop visits have been internal. As he said, about 90%, give or take, were shop visits that we performed within Safran and GE.
Speaker Change: The external network is beginning to step up. We have five external partners. They're beginning to get volume. We spoke about the ACASA win with one of the third-party MRO partners that we have last quarter. So those visits are...
Speaker Change: stepping up, and they've been stepping up sequentially as the year has gone up.
Speaker Change: So as we think about 2025, we expect about, you know, call it 15-ish percent of our shop visits to be external.
Speaker Change: And then, as I said earlier, about 25% of the shop visits that we have sold are going to, which are to be performed by our third-party MRO partners.
Speaker Change: And then, you know, that'll gradually grow up as we get into 2030 and beyond.
Speaker Change: So that's the trajectory we are on, and within that, obviously, you know, spare parts will grow, spare parts sales will grow as more shoppers have performed externally, so the margins on the program will get better because of that dynamic. But overall, listen, even on the services side,
Speaker Change: on our internal service contract, just given all the durability improvements that Larry just mentioned, our margins on our internal work that we are performing are very stable. I mean, we've had a couple of good years of
Speaker Change: service profitability results here on our own service contract. So feel good about that as well.
Our next question comes from David Strauss with Barclays.
Thanks, good morning. Good morning, David.
Speaker Change: I just wanted to touch on the free cash flow forecast for 2025, Roe. Maybe if you could go into, it looks like you're assuming neutral-ish overall working capital, maybe a slight tailwind. How are you thinking that kind of breaks out between...
Speaker Change: you know, inventory, LPSA cash, AD&A, just those moving pieces within working capital. Yeah. So, David, most of the cash growth in 25 is gonna be driven by our earnings.
Speaker Change: You know, working capital and AD&A combined should be a positive contributor.
Speaker Change: And, you know, within working capital, the inventory buildup should be less than what we, you know, what we had in 2024. I mean, in inventory, we added about a billion five of inventory in 2024, we obviously not expecting to add the same level now again.
Speaker Change: our primary objective is to increase our deliveries and we will do what it takes, but with the improvement in deliveries, we do expect that some of the inventory that we've built up will start getting liquidated.
Speaker Change: The flip side of that is the contract assets, which was a very favorable contributor in 24, will not be as favorable in 25, just given the increase in shop visits. So, still a positive, but not as much of a positive.
Speaker Change: So that's kind of, you know, within the working capital now, AD&A, you know, overall, we ended at about $300 million of outflow in 24, which was consistent with what we thought at the beginning of the year, a little bit more skewed towards the back quarter, the fourth quarter, but expect overall AD&A outflow to be, you know.
Speaker Change: at the same level, maybe a marginally higher. So that's kind of expectation on AD&A. And then, you know, the positive contributions from working capital and AD&A will be offset by the expecting higher cash tax payments next year and a step up in CapEx.
Speaker Change: So, conversion's still solidly above 100%, maybe a little bit lower than what we had in 2024.
Our next question comes from Jason Gursky with Citi.
Jason Gursky: Hey good morning everybody and Blair congratulations on the elevated role well-deserved.
Speaker Change: Hey Larry and Rahul. Good morning everybody. Rahul and Larry, why don't you just spend a few minutes on labor productivity across...
Speaker Change: the company and where you think you are relative to pre-pandemic levels and what you think it's going to take for the company to get back to the productivity that we're seeing.
Speaker Change: prior to the pandemic and just how much of that is actually in your control and how much of it is dependent on External suppliers getting you what you need on time. Thanks
Speaker Change: Jason, I think that as I look back on 2024, everything that we saw come through the financials, everything we saw visiting a number of our operations.
Thank you very much.
Speaker Change: ample evidence that the flight deck principles and tools really are helping us go in
Speaker Change: put the operators at the center of all we do and just drain the waste.
Speaker Change: out of their daily work. That to me is the heart of productivity, labor productivity.
Unfortunately,
Speaker Change: That work that we see with our own eyes hasn't fully translated.
into either better on-time delivery performance or labor productivity.
Speaker Change: For the very reason that you touched on, and I don't want this to sound in any way defensive.
Speaker Change: The progress that we're making with those material inputs that we referenced in the prepared remarks, the sequential first half, second half up 26% coupled with.
The higher predictability, the higher reliability of those inputs.
Speaker Change: North of 90% now for the critical suppliers will enable us to have more predictable, more linear flow through our factories, through our repair shops.
Speaker Change: such that I think we'll actually do better from a labor productivity. It's hard to quantify how much.
Speaker Change: He will labor lack of productivity comes as a result of our delivery challenges on the inbound side. But as we work those, I think we sit here fully expecting to be able to deliver better labor productivity in twenty five and certainly from there.
Our next question comes from Gavin Parsons with UBS.
Hey, morning guys. Good morning.
Speaker Change: I'd love to just kind of go further into supply chain a little bit. It sounds like it's getting better. You've got the 1A blade certified, but shop visits were, internal shop visits were still down in the fourth quarter. Just maybe if you could go into where the bottlenecks or the pain points still are, and if that's a linear improvement through 25, or if that's a step function at some point on an unlock. Thank you.
Speaker Change: Well, I don't think we have much by way of new news in that regard. The challenge remains as it has with 15 or so critical suppliers that we're working intensely with.
Speaker Change: Like we mentioned yet again today, that we've got well over 500 of our own people embedded in the supply base working to identify and eliminate constraints, thus unlocking the output that we need.
Speaker Change: I think as we look at 24, the progress that we made.
In hindsight, it's significant.
Speaker Change: But it came in fits and starts, right? It was a game of inches, if you will. I think that will continue to be the case in 2025.
Speaker Change: There's no step function improvement necessarily sitting out there. On the HPT blades, certainly the LEAP 1a durability kit will help, but more broadly speaking, it really is working through.
Speaker Change: the entirety of the supply base to make sure they're clear on our demand signals that those are being
properly deployed.
Speaker Change: and that we're working through whatever capacity constraints, bottlenecks, and the like that they may have in their own operations.
Speaker Change: And that, to me, is really what's so critical. And that'll be fundamental to how we support
Boeing this year, they ramped particularly on the 737 MAX.
Speaker Change: And the same goes with Airbus, and we know we're working very hard.
Speaker Change: well aligned with Airbus as we both march toward their rate 75.
Speaker Change: So, a lot to do, it won't be linear, but I think we have tremendous confidence that we're coming into 2025 far better prepared for the ramp than we were coming into 2024. and the final thing I'll say is that.
Speaker Change: We often talk about the ramp wholly focused on on new make the work we do with our supply base
Speaker Change: helps us support the air framers, but it's often the same parts and the same suppliers that feed into the aftermarket.
Speaker Change: So I would just caution anyone to over about over indexing on that say that 15 to 20 percent increase in leap new make in 2025 the demands on the supply base are going to be In excess of that again because we also need to support the aftermarket with those same partners
Speaker Change: And, Gavin, just to add to what Larry just said, just as we think about 2025 here and as we're coming out of the gate, you saw the sequential improvement in our engine output.
Speaker Change: in 4Q. We expect that, you know, kind of continuously sequential improvements as you go through the year.
but what that translates into a little bit more growth.
Speaker Change: on an year-over-year basis as we get into the second and third quarters because that's where we had some challenging quarters.
Speaker Change: last year because we started out well coming out of the gate in one cue.
Speaker Change: So, you know, how that translates for our overall business, and just to add to what I said to Sheila's question earlier.
Speaker Change: About how CES is going to perform. I think the same applies to DPT as well DPT is going to have all software start here in one cue given the first quarter was pretty strong for for for DPT, but
Speaker Change: a little slower start in DPT plus, you know, some of the internal investments that we are making in the business to support the new programs.
Speaker Change: So if you step back and look at the company overall, you know, we expect overall full year revenue for the first quarter to line up with what we are expecting for full year for the company. Our profit will be flat to maybe sequentially down a little bit versus what we did in the fourth quarter as we go from 4Q to 1Q, profit could be flat to be slightly down. But, you know,
Speaker Change: strong growth on a year-over-year basis and margins should expand in the quarter as well.
Liz, we have time for one last question.
This question comes from Robert Spingarn with Melius Research.
Hey, good morning.
Speaker Change: Good morning. Larry, maybe I can finish off with a high-level strategic question.
Speaker Change: Some would argue that RTX's ability to bundle Pratt's propulsion technology with Collins offering avionics and structures could provide them with a competitive advantage when bidding for work packages on future aircraft programs.
Speaker Change: Your balance sheet is in great shape. This is evidenced by your updated cash.
Speaker Change: deployment plans this morning, and since you're going to generate a lot of cash over the next five years,
Is there any desire to expand the business?
Speaker Change: beyond propulsion through organic or more particularly inorganic means. Thank you.
I think we will stand by.
Speaker Change: our capital allocation framework that we shared almost a year ago now with respect to how we think we will deploy
Speaker Change: not only our cash flows and our cash reserves in 25, but going forward. We certainly have ample resources, but again, just to reiterate.
Uh
Speaker Change: we're going to have a strong bias toward shareholder returns. Doesn't mean that we will exclude M&A.
Speaker Change: But, as you saw with the North star announcement, much of what we'll do will be a small.
tuck-ins and adjacencies.
Speaker Change: I don't think I've ever in this role at this company or elsewhere publicly commented on specific situations and I think I'll hold to that again here this morning, but we appreciate and understand the question.
Larry, any final comments?
Blair, I would just wrap up to say.
The team.
Speaker Change: all around the world delivered standout results in 2024. Clearly, the finish there in the fourth quarter was no exception.
Speaker Change: I hope everybody on the call heard how excited we are about the year ahead as we work to meet what we believe to be historic industry demand and deliver for our customers.
Speaker Change: We certainly appreciate your time today and your interest in GE Aerospace.
Speaker Change: Thank you ladies and gentlemen. This concludes today's conference. Thank you for participating. You may now disconnect.
Speaker Change: [music].