GE(GE) - 2025 Q1 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Orders increased by 12% and revenue grew by 11%, with profit rising to $2.1 billion, a 38% increase year-over-year, leading to margins of 23.8% [8][33] - Earnings per share (EPS) reached$ 1.49, up 60% year-over-year, while free cash flow was $1.4 billion, down 14% [9][34] - Working capital was a source of cash, primarily from contract assets, with inventory increasing to prepare for higher output [34] Business Line Data and Key Metrics Changes - In Commercial Engines & Services (CES), orders were up 15%, with services orders increasing by 31% and revenue up 14% [36] - Defense & Propulsion Technologies (DPT) saw flat orders year-over-year, with services up 14% and revenue growing by 1% [40][41] - CES profit was$ 1.9 billion, up 35%, while DPT profit increased by 16% [38][41] Market Data and Key Metrics Changes - The commercial services backlog grew to over $140 billion, with a noted lag in converting orders to revenue due to supply chain dynamics [15] - Spare parts delinquency increased over 2x year-over-year, indicating challenges in meeting demand [15] Company Strategy and Development Direction - The company is focused on service and readiness, with a$ 170 billion backlog and approximately $3 billion in annual R&D spending [7][8] - GE Aerospace is investing$ 1 billion in U.S. manufacturing and hiring over 5,000 U.S. workers to support domestic manufacturing efforts [11] - The company is advocating for zero-for-zero tariffs in the aviation sector to maintain competitiveness [12] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in maintaining full-year guidance despite macroeconomic uncertainties, expecting low double-digit revenue growth and profit between $7.8 billion to$ 8.2 billion [44][45] - The company is taking a cautious approach to second-half expectations, adjusting for potential tariff impacts and a slowdown in departures [46][47] Other Important Information - The company is leveraging its FLIGHT DECK operating model to address supply chain constraints and improve operational efficiency [18][25] - The LEAP engine is expected to see significant growth, with external shop visits growing over 60% in the first quarter [24] Q&A Session Summary Question: Comments on tariffs and interactions with the administration - Management has engaged with senior administration officials, advocating for a return to a zero-tariff approach, emphasizing the sector's $75 billion trade surplus [58][61] Question: Margin expectations in light of tariffs - Management expects continued momentum into the second quarter, with revenue growth better than the first quarter and profit dollars flat to sequentially up [72] Question: Departure growth assumptions for the second half - Management is taking a conservative view on departures, expecting minimal growth in the second half due to potential softening in the U.S. market [80][83] Question: Pricing strategy amidst tariffs - The company plans to implement typical catalog price increases later in the summer while also considering temporary surcharges to offset tariff impacts [92][94] Question: Spare parts purchasing dynamics - No pre-buys were observed in January, with spare parts revenue growth driven by a strong backlog and ongoing demand [100][102] Question: Impact of executive orders on the defense sector - Management views recent executive orders positively, as they may streamline acquisition processes and support growth in defense exports [148] Question: Rare earths and supply chain management - The company is actively managing inventory and sourcing strategies for rare metals, currently not seeing significant issues [152] Question: Balancing price increases and demand - Management aims to balance price increases to offset tariffs while avoiding demand destruction, maintaining a focus on customer relationships [158]