GE(GE) - 2025 Q4 - Earnings Call Transcript

Financial Data and Key Metrics Changes - In Q4 2025, orders increased by 74%, revenue grew by 20%, and EPS rose by 19% to $1.57, with free cash flow up 15% [4][14] - For the full year, orders were up 32%, revenue increased by 21%, operating profit grew by $1.8 billion, and free cash flow rose by $1.5 billion [4][15] - Operating profit for Q4 was $2.3 billion, up 14%, while for the full year, it reached $9.1 billion, a 25% increase [14][15] Business Line Data and Key Metrics Changes - In the Commercial Engines Services (CES) segment, orders were up 76% in Q4, with revenue increasing by 24% and services revenue up 31% [15][16] - In the Defense and Power Technologies (DPT) segment, orders increased by 61%, with revenue growing by 13% [17] - CES profit grew by 5% to $2.3 billion, while DPT profit was $1.3 billion, with margins up 110 basis points to 12.3% [16][18] Market Data and Key Metrics Changes - The backlog increased to approximately $190 billion, up nearly $20 billion from the previous year [5] - The installed base of LEAP engines is expected to triple between 2024 and 2030, driving aftermarket demand [9] - The defense book-to-bill ratio was above 2, indicating strong demand in the defense sector [17] Company Strategy and Development Direction - The company is focused on enhancing customer experience and operational efficiency through the integration of technology and operations [7][24] - Investments of approximately $500 million are being allocated to expand MRO capacity, particularly for LEAP engines [9] - The company aims for mid-teens revenue growth in 2026, with a focus on both commercial and defense sectors [22][23] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in robust demand for 2026, supported by a strong backlog and favorable market conditions [25][27] - The company anticipates generating $8-$8.4 billion in free cash flow in 2026, with conversion rates remaining above 100% [6][22] - Management highlighted the importance of continuous improvement and innovation to maintain competitive advantages in the industry [24][49] Other Important Information - The company is transitioning its segment reporting to better align with organizational changes, impacting revenue and profit allocations [20] - R&D spending remains a priority, with approximately $3 billion allocated annually to drive innovation and improve product offerings [48] Q&A Session Summary Question: Can you elaborate on the commercial aftermarket backdrop? - Management noted strong momentum in the aftermarket, with expectations for mid-teens services growth in 2026, driven by increased work scopes and pricing [25][27] Question: What is the profitability outlook for LEAP engines? - Management confirmed that LEAP original equipment is expected to be profitable in 2026, with improvements in supply chain visibility and readiness [30][32] Question: How are turnaround times improving across engine platforms? - Improvements in turnaround times are attributed to better material availability and efficient execution of standard work on the shop floor [34] Question: What are the expected losses from the GE9X program? - Losses for the GE9X program are expected to double year-over-year in 2026, consistent with prior guidance [36] Question: How is the company managing R&D investments? - R&D investments are focused on enhancing customer experience and developing next-generation technologies, with a commitment to maintaining spending levels [48][49]