GE Aerospace (GE) FY Conference May 28, 2025 08:00 AM ET Speaker0 Okay. Why don't we get started here? I'm Doug Harned, Bernstein's senior global aerospace and defense analyst. And I am thrilled to have back with us again Larry Culp, CEO and chairman of GE Aerospace. Larry's got a few things he wants to talk about first, and then we'll go into a fireside chat. And I think as you may know, you can submit if you have questions through the Pigeonhole link. But, Larry, let me turn it over to you. Speaker1 Great ...

Core Viewpoint - GE Aerospace's stock has surged nearly 40% this year, significantly outperforming the S&P 500, which has decreased by 1%, raising concerns about potential overvaluation and a possible correction of 25-40% to below $150 per share [2] Financial Performance - GE Aerospace's stock is currently priced at approximately $235 per share, trading at nearly 60 times its free cash flow over the last twelve months, resulting in a cash flow yield of about 1.7% [2] - The company reported revenue growth of about 9%, which, while better than the 5% seen in recent years, is deemed insufficient to justify its high valuation multiple [2] - In Q1 2025, GE Aerospace achieved order inflows of $12.3 billion, reflecting a 12% year-over-year increase, and has an extensive backlog of $140 billion [3] Margin Expansion - GE Aerospace has experienced a significant increase in operating margin, rising from 12.3% in 2022 to 18.8% over the last twelve months, marking a 53% increase [4] Market Position - The company holds a leading position in the large commercial engine market, with its CFM56 and LEAP engines powering a substantial portion of the global commercial fleet, which creates a long-term revenue stream through maintenance and service operations [5] Future Outlook - While GE's revenue growth may remain in double digits, the rapid margin expansion is likely not sustainable, suggesting a need for valuation alignment with companies achieving 10-15% revenue growth [6] - Compared to Microsoft, which trades at about 48 times free cash flow with 15% annual growth, GE's current valuation appears stretched, indicating that at Microsoft's multiple, GE's stock price would be closer to $190 per share [7] Economic Factors - GE Aerospace's performance is closely tied to aviation volumes, which could benefit from a strengthening economy, potentially enhancing business and leisure travel as well as global trade [8][9] - Increased flight activity is expected to drive demand for new aircraft and engines, leading to higher maintenance and service revenue for GE, as operational hours increase [10] Investment Considerations - Comparing GE with firms like Nvidia and Microsoft helps in understanding the relative risk-reward dynamics of investing in GE, as these comparisons provide insights into whether the anticipated returns justify the associated risks [11][12]

Core Insights - GE Aerospace has entered into a limited distribution agreement with United Aero Group (UAG) to distribute parts and spares for GE's CT7/T700 engines, enhancing access to maintenance solutions for operators [1][4] - UAG specializes in providing engine parts and aftermarket services for both military and commercial operators, ensuring operational safety and efficiency [2] - The CT7/T700 engine family has achieved over 130 million flight hours and delivered more than 25,000 engines, installed in 15 types of military and civilian aircraft globally [3] Company Performance - The partnership with UAG aims to expand the availability of OEM-backed parts for CT7/T700 engines in underserved regions, focusing on enhanced support services for operators [4] - GE Aerospace is experiencing growth due to a rising installed base and increased utilization of engine platforms, supported by strong momentum in commercial and defense sectors [5] - In the past six months, GE's shares have increased by 29.6%, outperforming the industry growth of 9.8% [6]

Group 1 - GE Aerospace secured a deal with Ethiopian Airlines Group to supply GEnx engines for 11 new Boeing 787 aircraft, increasing the total GEnx-powered aircraft in the airline's fleet to 30 from 19 [1][2] - The GEnx engine family has completed over 62 million flight hours, with more than 3,600 engines currently in service and backlog, and is installed in two-thirds of all Boeing 787 aircraft in operation [2] - Ethiopian Airlines reaffirmed its commitment to equip eight Boeing 777-9 jets with GE9X engines, with an option for six additional aircraft [2][3] Group 2 - GE will provide maintenance, repair, and overhaul services for the GEnx and GE9X engines to Ethiopian Airlines, highlighting a long-standing collaboration that began in 2003 [3] - Recently, GE has secured multiple contracts, including one from Qatar Airways for GE9X and GEnx engines, and an Indefinite Delivery/Indefinite Quantity contract from the U.S. Air Force for F110-GE-129 engines [4] Group 3 - GE Aerospace is experiencing growth due to a rising installed base and higher utilization of engine platforms, supported by increasing U.S. and international defense budgets, geopolitical tensions, and robust demand for commercial air travel [5] - In the past six months, GE's shares have increased by 31.7%, outperforming the industry's growth of 11.1% [6]

Core Insights - The article highlights a significant multi-billion-dollar engine and services agreement between GE Aerospace and Qatar Airways, marking one of the largest commitments for widebody aircraft by GE Aerospace [1][2] - This agreement is expected to provide a substantial tailwind to GE Aerospace's operations, financial trajectory, and long-term value proposition for shareholders [2] Agreement Details - The deal includes an order for over 400 advanced jet engines, specifically 60 GE9X engines and 260 GEnx engines, along with options for additional units and a comprehensive inventory of spares [3] - The GE9X engine offers 10% better fuel efficiency than its predecessor, while the GEnx engine family has powered about two-thirds of all Boeing 787s in operation [4] Sustainability and Services - Both engine platforms are certified to run on 100% Sustainable Aviation Fuel (SAF) blends, aligning with aviation decarbonization goals [5] - The extensive Maintenance, Repair, and Overhaul (MRO) contracts associated with the agreement are expected to generate higher profit margins and provide recurring revenue for decades, enhancing earnings predictability for shareholders [6] Strategic Positioning - The success of this deal is attributed to GE Aerospace's strategic focus following the spin-offs of GE HealthCare and GE Vernova, allowing for more deliberate capital allocation [7] - In Q1 2025, GE Aerospace reported $12.3 billion in total orders (up 12% YoY) and a 60% increase in adjusted EPS to $1.49, indicating strong financial performance [8] Future Revenue and Growth - The Qatar Airways agreement adds significantly to GE's commercial engine backlog, with a Remaining Performance Obligation (RPO) of $153.8 billion in the Commercial Engines & Services segment [9] - The deal supports GE's 2025 outlook, which includes low-double-digit adjusted revenue growth and operating profit guidance between $7.8 billion and $8.2 billion [10] Competitive Advantage - Qatar Airways' choice of GE engines is seen as a strong endorsement of GE Aerospace's technological innovation and operational reliability, marking a competitive victory in the global market [11] - The fulfillment of this large order will require increased production rates, aligning with GE Aerospace's plans to invest nearly $1 billion in U.S. manufacturing facilities [12][13] Shareholder Value - The cash flow from the agreement supports GE's capital return program, including a $0.28 quarterly dividend and a $15 billion share repurchase program [16] - Mega-deals like this one tend to enhance analyst sentiment and market confidence, reducing uncertainty and highlighting the company's competitive edge [17]

Core Insights - GE Aerospace and Qatar Airways have signed a historic agreement for over 400 engines, marking the largest widebody engine deal in GE Aerospace's history [1][2] - The deal includes 60 GE9X engines and 260 GEnx engines, supporting Qatar Airways' expansion plans and enhancing its fleet efficiency [1][2] - The GE9X engine is noted for being the world's most powerful and fuel-efficient commercial aircraft engine, offering 10% better specific fuel consumption than its predecessor [3][4] Company and Industry Overview - GE Aerospace's commitment to Qatar's aviation industry is reinforced by this agreement, which builds on a previous order of 188 GE9X engines, bringing the total to 248 [2] - The GEnx engine family has accumulated over 62 million flight hours since its introduction in 2011, making it GE Aerospace's fastest-selling high-thrust engine [4] - Both GE9X and GEnx engines are certified to run on Sustainable Aviation Fuel (SAF) blends, aligning with industry trends towards sustainability [4] Strategic Partnerships - The partnership includes service agreements for maintenance, repair, and overhaul of the engines, ensuring optimal performance and minimal downtime [2][5] - GE Aerospace provides On Wing Support in Qatar, which includes training for aviation professionals, contributing to the development of local talent in the region [5] Recognition and Achievements - Qatar Airways has been recognized as the 'World's Best Airline' multiple times, showcasing its commitment to excellence in the aviation industry [7][8] - The airline has also received accolades for its environmental initiatives and operational standards, being the first in the Middle East to achieve the highest level of IATA's Environmental Assessment [9]

Financial Data and Key Metrics Changes - GE Aerospace reported adjusted revenue of $35 billion in 2024, with revenue growth in double digits and profit increasing by $1.7 billion [10] - Free cash flow rose by $1.3 billion, indicating strong financial performance driven by operational and commercial successes [10][12] - The company returned over $6 billion to shareholders through share repurchases and dividends, achieving a total shareholder return of 65% in 2024, significantly outperforming the S&P 500 Industrials Index [13] Business Line Data and Key Metrics Changes - The aftermarket services segment accounted for approximately 70% of total revenue, highlighting its importance to the company's financial health [10] - Orders for more than 4,600 engines were secured in 2024, with significant commitments from major airlines and defense sectors [11] - The LEAP engine program is a key growth driver, with aftermarket capacity expanded by 40% in 2024 and enhancements expected to double its time on wing performance [12] Market Data and Key Metrics Changes - The commercial services backlog stands at over $140 billion, providing visibility for future revenue growth [17] - The aerospace sector has benefited from a tariff-free regime since 1979, contributing to a $75 billion annual US trade surplus [40] - Supply chain constraints were identified as a challenge, particularly related to 15 priority supplier sites, but improvements were made to increase material input by 26% in the second half of 2024 [15][46] Company Strategy and Development Direction - The company is focused on service and readiness, with a strategy that emphasizes operational efficiency and customer satisfaction [13] - GE Aerospace plans to invest over $3 billion annually in R&D to advance technologies that will shape the future of flight, including open fan engines and hypersonics [48][49] - The integration of engineering and supply chain teams into a new technology and operations organization aims to enhance collaboration and accelerate problem-solving [16][46] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in delivering another strong year in 2025, supported by a robust start and a significant commercial services backlog [17] - The company is navigating macroeconomic uncertainties while focusing on sustainable improvements to meet demand in 2025 [46] - Management emphasized the importance of maintaining investments in key priorities despite the challenges posed by heightened tariffs [41][42] Other Important Information - The company has a diversified fleet of preferred platforms across narrow body and defense sectors, which enhances its competitive advantage [18] - GE Aerospace's commitment to safety, quality, delivery, and cost remains a core principle guiding its operations [18] Q&A Session Summary Question: What are your current and future views on the administration's tariffs as it applies to GE Aerospace growth and supplies to and from other countries? - Management supports the administration's focus on American competitiveness and plans to invest $1 billion in US manufacturing while hiring 5,000 workers [40] - Heightened tariffs are expected to result in additional costs, but the company is taking actions to offset these impacts, estimating a reduction of incremental costs to $500 million in 2025 [41][42] Question: What were factors in 2024 that limited revenue growth for commercial engines and services in the company overall? - While total company revenue was up double digits, supply chain and material constraints were significant challenges, particularly from priority suppliers [44] - The company is reorganizing teams to improve transparency and stability with suppliers, aiming for increased output in 2025 [46] Question: What technologies is the company most excited about? - The company is investing in technologies that will shape next-generation aviation, including RISE technologies for commercial aerospace and advanced engines for defense [48][49]

Core Viewpoint - GE Aerospace is positioned to be a superior investment compared to many of its customers, particularly major airlines like Delta Air Lines [1] Group 1 - GE Aerospace is highlighted as a more attractive investment opportunity than its airline customers [1] - The analysis suggests that the aerospace supplier's performance may outpace that of airline giants [1]

Core Insights - GE Aerospace's order and profit situation in the first quarter of 2025 appears strong, mirroring the robust performance seen in 2024 [1] Group 1 - The company's first quarter earnings presentation highlighted a solid order and profit situation [1]

Group 1 - Proactive provides fast, accessible, informative, and actionable business and finance news content to a global investment audience [2] - The news team covers medium and small-cap markets, as well as blue-chip companies, commodities, and broader investment stories [3] - Proactive's content includes insights across various sectors such as biotech, pharma, mining, natural resources, battery metals, oil and gas, crypto, and emerging technologies [3] Group 2 - Proactive is committed to adopting technology to enhance workflows and improve content production [4] - The company utilizes automation and software tools, including generative AI, while ensuring all content is edited and authored by humans [5]