GE Aerospace CEO Larry Culp on Q2 results: There's a lot that's going right in the business

GE Aerospace Q2 2024 Results and Investor Day Preview: Summary

Key Concepts:

• Q2 2024 Performance: Strong financial results driven by robust backlog and operational improvements.
• Flight Deck: GE Aerospace's lean operating model focused on safety, quality, delivery, and cost (S-Q-D-C).
• Tariff-Free Regime: Advocating for the continuation of tariff-free trade in the aerospace industry.
• Investor Day 2024: Outlining long-term growth strategy and financial targets.
• Free Cash Flow: A key metric for GE Aerospace, with a target of $8.5 billion by 2028.
• Aftermarket: Services and parts business for existing engines, a significant growth area.

1. Q2 2024 Financial Performance:

• GE Aerospace reported strong Q2 results, beating expectations on both the top and bottom lines.
• Orders, revenue, and operating profit were up over 20%.
• Earnings were up nearly 40%.
• Free cash flow doubled compared to the previous year.
• Driving factor: $175 billion backlog in commercial services (up 29%) and new engine orders for commercial and defense customers.
• Improved performance attributed to Flight Deck, GE's lean operating model, improving safety, quality, and delivery speed.

2. Flight Deck and Quality Control:

• Flight Deck prioritizes Safety, Quality, Delivery, and Cost (S-Q-D-C).
• The Air India 171 incident, though not linked to GE engines, served as a reminder to reinforce quality control measures.
• The industry does not compete on safety, and GE Aerospace is focused on safety as job one every day.
• The company uses such unfortunate events as a moment to double down, to look, to learn.

3. Trade and Tariffs:

• In April, concerns existed about potential trade wars impacting GE Aerospace.
• By mid-July, orders were up 27% in both services and new engines, indicating robust demand.
• GE Aerospace advocates for a return to the tariff-free construct in aerospace, dating back to 1979.
• The US-UK agreement includes this principle, and GE Aerospace hopes it will be replicated in other trade deals.
• Larry Culp is optimistic about the prospect of maintaining tariff-free trade, citing the US's $75 billion annual trade surplus in aerospace and the President's understanding of the industry.

4. Boeing 777X and Engine Certification:

• The President announced a massive order from Qatar Airways, including over 400 GE engines for Boeing aircraft.
• This includes engines for the 777X, which is still undergoing certification.
• GE Aerospace is working towards Boeing's planned entry-into-service date in 2026.
• The engine will be the most tested engine and aircraft in recent memory.
• The win rate against competition (likely referring to Rolls Royce) is in the 60% range for the 777X engine.

5. Investor Day 2024 and Financial Guidance:

• GE Aerospace is hosting an Investor Day to outline its long-term strategy.
• The company raised its 2025 guidance and is providing an outlook for 2028.
• Targeting double-digit growth, aiming for $11.5 billion in operating profit by 2028.
• This is expected to drive mid-teens earnings growth and $8.5 billion in free cash flow.
• Return of capital to shareholders is being increased by 20% to $24 billion.
• Larry Culp's response to skeptics questioning the stock valuation: "We're focused on the customer first and foremost and those things that we can control."

6. Conclusion:

GE Aerospace is demonstrating strong performance driven by a large backlog, operational improvements through its "Flight Deck" operating model, and robust demand in both new engines and aftermarket services. The company is advocating for continued tariff-free trade in the aerospace industry and has set ambitious financial targets for 2028, including significant free cash flow generation and return of capital to shareholders. Larry Culp emphasizes a focus on customers and factors within the company's control as the key to achieving these goals.