GE has reported its third quarter results along with news that as planned GE Aerospace will be spun out as a standalone entity in the second quarter of next year, with an investment grade rating.
For the third quarter, GE reported total orders of $17.9bn, a rise of 17% over the prior year, with total revenue up by 20% to $17.3bn ($16.5bn on an adjusted basis). GE’s profit margin jumped to 1.7%, up 330 basis points, up 9.8% and 760 bps organically on an adjusted basis.
"GE delivered another quarter of very strong results with double-digit growth in revenue, profit, and cash,” said GE Chairman and CEO and GE Aerospace CEO H. Lawrence Culp, Jr. “At GE Aerospace, we continue to experience rapid growth driven by robust demand and solid execution, largely in commercial engines and services.”
GE Aerospace orders increased by 34% in the third quarter to $9.8 billion on a reported and organic basis, reported GE adding that there was strength in both equipment and services. GE Aerospace revenues of $8.4 billion grew 25% on a reported and organic basis, led by commercial engines and services, with “strong external spare parts growth”, said GE. The engine manufacturer said that services volume and pricing, net of inflation, more than offset increased investments and impact from mix.
Speaking on the earnings call, Rahul Ghai, chief financial officer (CFO) of GE, confirmed that demand for engines “remains robust” with GE and CFM departures growing “mid-teens year-over-year”. Revenue from services rose by 31% due to “volume, pricing and heavier work scopes”, with external spare parts up more than 35% and internal shop visits up by 2% with supply chain constraints impacting growth. Commercial engines revenue grew 23% with LEAP deliveries up 12% year-over-year.
Despite growing demand, supply chain issues are still impacting delivery schedules. GE said that it was are now planning for a 40% to 45% increase in fleet deliveries this year, down from its original 50% target set at the beginning of the year. Ghai said that this reduction was “primarily a function of our own supply chain challenges that we are having internally”. He added that while the company was experiencing an improvement in total material inflow, “supplier delinquencies still remain high” and impacting deliveries.
Ghai added: “LEAP deliveries are a little bit lighter than we had initially expected… Based on the revised guidance that we just provided, we expect about a 15% growth from 3Q to 4Q and a pretty big ramp year-over-year. Now some of the LEAP deliveries have pushed out into '24 and '25.”
GE noted that it had received total proceeds of approximately $2.7 billion in the quarter from the sale of a portion of its AerCap shares. GE stated that it “continues to expect to fully monetize its remaining stakes in AerCap and GE HealthCare, of approximately 14.5% and 13.5% respectively, in an orderly manner over time”. Culp stated that the company had further simplified and strengthened the balance sheet by redeeming the remainder of its preferred equity and selling a portion of its AerCap shares for $2.7 billion of proceeds. He said: “Our balance sheet is well positioned to support the launch of two investment-grade companies.”
GE has announced that it expects to spin off GE Vernova and launch GE Aerospace in the beginning of the second quarter of 2024, subject to final approval from the GE Board of Directors and other customary conditions. Shares of GE Aerospace will continue GE's listing on the New York Stock Exchange under the ticker symbol “GE”.
Based on the year-to-date results and “continued momentum in the fourth quarter”, GE has raised its full-year 2023 guidance. GE Aerospace revenue growth is now expected to be in the low 20s and profit to be about $6 billion, up roughly $1.2 billion year-over-year with free cash flow growth trending better than prior expectations, according to Rahul Ghai, Senior VP & CFO of GE.
GE did not refer to the ongoing issue regarding suspect parts in certain CFM engines supplied by AOG Technics, which is alleged to have falsified certificates for the parts. However, Reuters reported this week that CFM had confirmed that more than half of the 145 engines presumed to include suspect parts had been removed from service. A CFM spokesperson told Reuters that it is “closely working with CFM56 operators affected by unauthorised parts from AOG Technics while supporting the investigation to keep unapproved parts out of the global supply chain”.