Key Metrics
- Segment Revenue (GAAP):
- Commercial Engines and Services: $7,003 million (8% yoy)
- Defense and Propulsion Technologies: $2,243 million (2% yoy)
- Operating Margin:
- Commercial Engines and Services: 25.7%
- Defense and Propulsion Technologies: 9.8%
- Orders:
- Commercial Engines & Services: Up 29%
- Defense & Propulsion Technologies: Up 19%
- Free Cash Flow: $1.8 billion (140% conversion)
Forward guidance
- 2024 Revenue Guidance: CES expected to grow low-double digits to mid-teens; DPT growth projected at mid-to-high single digits.
- Operating Profit Guidance: Operating profit now expected in the range of $6.7 billion to $6.9 billion, reflecting over 200 basis points of margin expansion year-over-year.
- Adjusted EPS Guidance: Adjusted EPS raised to $4.20 to $4.35, up $0.20 at the midpoint from prior guidance.
- Free Cash Flow Guidance: Free cash flow guidance increased to $5.6 billion to $5.8 billion, up $250 million at the midpoint.
- Corporate Costs: Corporate costs now expected around $850 million, down from below $900 million previously.
- Tax Rate Guidance: Tax rate expected to be around 20%, lower than prior expectations of low 20s.
- 2025 EBIT Growth: Anticipated EBIT growth of approximately $1 billion relative to 2024, with commercial services expected to grow low-double digits.
Key takeaways
- Positives:
- Larry Culp emphasized, "We're motivated each day by our purpose and guided by FLIGHT DECK," indicating a strong commitment to operational excellence and customer service, which is crucial for sustaining demand.
- Orders increased by 28%, driven by robust demand, with a backlog of $149 billion, over 90% in services, suggesting strong future revenue streams.
- Free cash flow reached $1.8 billion with over 140% conversion, highlighting effective cash management and operational efficiency.
- The company is investing $1 billion in MRO over five years to expand capacity, which is essential for meeting increasing demand and improving turnaround times.
- Culp noted, "We expect inputs to increase again in the fourth quarter," indicating confidence in supply chain improvements and production ramp-up.
- Negatives:
- Operating profit in Defense & Propulsion Technologies declined despite a 19% increase in orders, reflecting operational challenges and increased R&D investments.
- Engine deliveries were down year-over-year, with Culp acknowledging, "LEAP will be down, unfortunately, year-over-year in terms of new engine deliveries," indicating potential revenue pressure.
- Supply chain constraints continue to impact shipments, with Ghai stating, "Inventory increased, although at a lower rate than prior quarters," suggesting ongoing operational challenges.
- Culp mentioned, "We could have used more" from priority suppliers, indicating that while improvements are being made, capacity constraints remain a concern.
- The transition to new HPT blades is expected to help, but Culp cautioned, "If there was a silver bullet here, we would have used it some time ago," highlighting the complexity of operational improvements.
Peer Summary
- Healthcare and Life Sciences: Danaher Corp anticipates a low single-digit core revenue decline for 2024, with Rainer Blair noting, "Despite a modest improvement in the funding environment, [smaller customers] continue to rationalize their therapeutic programs," indicating cautious spending in the sector.
- Industrial and Consumer Products: 3M Co faces demand visibility challenges, with Bill Brown stating, "I know we’ve lost business and have paid fines due to poor delivery performance," reflecting operational weaknesses. Additionally, the consumer segment remains under pressure, with organic sales declining 0.7%.
- Industrial Manufacturing: Carlisle Cos Inc expects a 10% revenue growth for 2024, but Kevin Zdimal mentioned, "Pricing in the third quarter remained relatively stable," indicating competitive pricing pressures that could affect margins.
- Energy Solutions: GE Vernova Inc's wind segment is struggling, with management noting significant contract losses and a $700 million charge due to blade quality issues, suggesting operational challenges in the renewable energy space.
- Industrial Automation: Emerson Electric Co's discrete automation segment saw orders down mid-single digits, with Ram Krishnan highlighting uncertainty in recovery, stating, "We expect investments in self-reliance programs and sustainability to continue."
