General Electric Company (GE) Q4 2025 Earnings Call Transcript
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Overview
The earnings call summary and Q&A indicate positive sentiment. Revenue and EPS guidance have been raised, and strong demand is highlighted with a $175 billion backlog. Despite some headwinds like GE9X losses, the company is confident in overcoming these with strong service revenue growth and operational improvements. The Q&A further supports this with expectations of LEAP profitability and positive margin trajectory beyond 2026. The lack of detailed guidance in some areas is offset by overall strong financial metrics and optimistic future outlook, suggesting a positive stock price movement.
Key Financial Performance
Orders Fourth quarter orders were up 74%, with CES up 76% and DPT up 61%. For the full year, orders increased by 32%, with CES orders up 35% and DPT orders up 19%. The increase reflects robust demand for services and equipment.
Revenue Fourth quarter revenue increased by 20%, led by CES services up 31%. For the full year, revenue increased by 21%, with CES revenue up 24% and DPT revenue up 11%. The growth was driven by higher services volume, increased deliveries, and improved material availability.
Operating Profit Fourth quarter operating profit was $2.3 billion, up 14%. For the full year, operating profit increased by 25% to $9.1 billion. The increase was driven by higher services volume, productivity, and price, partially offset by investments and lower spare engine ratio.
Free Cash Flow Fourth quarter free cash flow was $1.8 billion, up 15%. For the full year, free cash flow grew by 24% or $1.5 billion to $7.7 billion. The growth was driven by higher earnings and continued contract asset favorability, partially offset by inventory growth.
EPS Fourth quarter EPS was $1.57, up 19%. For the full year, EPS increased by 38% to $6.37. The increase was driven by higher operating profit, a lower tax rate, and a reduced share count.
CES Segment Profit For the full year, CES profit grew by 26% to $8.9 billion, with margins expanding by 40 basis points to 26.6%. The growth was supported by services growth, productivity, and price.
DPT Segment Profit For the full year, DPT profit increased by 22% to $1.3 billion, with margins up 110 basis points to 12.3%. The growth was driven by volume, mix, and price, partially offset by investments and inflation.
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Operating Highlights
FLIGHT DECK: Enabled acceleration of output to deliver on a $190 billion backlog, up nearly $20 billion over the last year. Investments were made to improve time on wing and reduce cost of ownership.
LEAP-1A Durability Kit: Improved time on wing by more than 2x, matching industry-leading CFM56 performance. Incorporated in all LEAP-1A new engine deliveries and shop visits with nearly 1,500 kits shipped since certification.
Hybrid Electric Narrow-Body Engine Architecture: Completed a ground test campaign demonstrating the first-of-its-kind propulsion milestone, advancing technology from concept to scalable application.
Dubai Air Show Engine Wins: Recorded over 500 engine wins across narrowbodies and widebodies, including commitments from Riyadh Air, flydubai, Pegasus Airlines, and Delta.
Defense Market Expansion: Hindustan Aeronautics ordered 113 F404 engines for Tejas fighter jets, strengthening position in allied fighter programs.
MRO Network Expansion: Invested $500 million in LEAP MRO, expanding sites in Malaysia, Celma, Dallas, and a new on-wing support facility in Dubai. LEAP internal capacity expected to double.
Turnaround Time Improvements: Converted from batch to flow production, improving LEAP, CFM56, and GE90 turnaround times by over 10% year-over-year in Q4. Specific improvements include 20% at Wales facility and sustained sub-80 days at Celma.
Organizational Changes: Expanded CES to include T&O, integrating product line, engineering, and supply chain teams for improved engine life cycle management. Elevated customer-facing teams for better alignment with customer needs.
R&D Investments: Invested nearly $3 billion annually in R&D to enhance time on wing, lower cost of ownership, and advance next-gen technologies.
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Risk or Challenges
Supply Chain Challenges: While progress has been made in partnering with suppliers, there is acknowledgment that customers need more from the company. This indicates ongoing challenges in meeting customer demand and supply chain alignment.
Turnaround Times and Output: Efforts to improve shop visit output and turnaround times are ongoing, but the need for further progress to meet customer demand is highlighted. This includes challenges in converting from batch to flow production and sustaining improvements across facilities.
LEAP Engine Capacity: The company is dedicating significant investment to expand LEAP engine capacity, but the need to roughly double internal capacity indicates current limitations in meeting aftermarket demand.
Spare Engine Ratio: A decline in spare engine ratio due to timing of deliveries and back-end loaded spare engine deliveries in 2024 is noted as a challenge impacting financial performance.
Inflation and Investments: Higher investments and inflation are partially offsetting profit growth, particularly in the DPT segment.
Defense Unit Deliveries: Defense unit deliveries were down 7% year-over-year due to a difficult comparison, indicating challenges in maintaining consistent growth in this segment.
Customer Expectations: The company acknowledges that more needs to be done to meet customer expectations, particularly in LEAP engine delivery and performance.
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Guidance & Outlook
Revenue Growth: GE Aerospace expects low double-digit revenue growth in 2026, with commercial services revenue projected to grow mid-teens. LEAP engine deliveries are expected to increase by 15%, and wide-body program growth is anticipated to contribute significantly.
Operating Profit: Operating profit is projected to range between $9.85 billion and $10.25 billion, representing an increase of over $1 billion or more than 10% at the midpoint.
Earnings Per Share (EPS): EPS is expected to range from $7.10 to $7.40, reflecting nearly 15% growth at the midpoint.
Free Cash Flow: Free cash flow is forecasted to be between $8 billion and $8.4 billion, driven by higher earnings and slower inventory growth.
LEAP Engine Maintenance and Expansion: LEAP internal shop visits are expected to grow by 25%, supported by investments of approximately $500 million in MRO facilities. This includes expanding sites in Malaysia, Celma, and Dallas, and a new on-wing support facility in Dubai. LEAP internal capacity is expected to double.
Defense Segment Growth: Defense revenue is expected to grow mid- to high single digits, with profit projected between $1.55 billion and $1.65 billion. This growth will be supported by higher deliveries, partially offset by inflation and investments.
Capital Expenditures: CapEx is expected to remain at approximately 3% of sales.
R&D Investments: GE Aerospace plans to continue its nearly $3 billion annual R&D investment to enhance engine durability, efficiency, and advanced defense capabilities.
Backlog and Order Growth: The company has a $190 billion backlog, which grew by nearly $20 billion in 2025. This backlog supports future growth expectations.
Next-Generation Engine Development: GE Aerospace is advancing hybrid electric narrow-body engine architecture and expanding the LEAP repair catalog to lower costs and improve turnaround times.
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Shareholder Return Plan
The selected topic was not discussed during the call.
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Key Q&A
Q:Can you elaborate on the commercial aftermarket backdrop and the assumptions underlying the mid-teens services growth guidance for 2026?
A:Management stated that they have not seen anything at the beginning of the year that would pause the momentum in the commercial aftermarket. They highlighted a $190 billion backlog, strong demand from airlines like Delta and United, and opportunities in narrow-body and wide-body segments. They aim to outperform the mid-teens growth guidance but emphasized challenges in moving spare parts and completing shop visits. They also noted improvements in supplier performance and internal shop visit capabilities.
Q:Are you still expecting LEAP profitability on the original equipment side in 2026, and what investments are required in the supply chain to meet production rates?
A:Management confirmed that LEAP OE is expected to be profitable in 2026. They emphasized the interconnectedness of the supply chain for new make and aftermarket demands. Investments in process improvement and capital expansion are ongoing to meet production rates, and they are confident in their ability to satisfy airline and airframer needs.
Q:What is driving the improvement in turnaround times for engines like LEAP, CFM56, and GE90, and how does this reflect in financials?
A:Turnaround time improvements are driven by better material availability and efficient execution of standard work on the shop floor. Improved supplier performance and predictable deliveries have reduced system noise, enabling productivity gains. Financially, this results in more shop visits completed and productivity improvements, contributing to revenue and profit growth.
Q:Can you quantify the GE9X headwind in 2025 and the expected impact in 2026? Also, what is the quarterly earnings cadence for CES in 2026?
A:The GE9X program incurred losses of a couple of hundred million dollars in 2025, and these losses are expected to double in 2026 due to increased engine shipments. For CES, management expects high teens revenue growth in Q1 2026, driven by strong services and equipment output. Profit is expected to grow year-over-year, with margins slightly better than Q4 2025. Free cash flow will be down year-over-year due to certain payments.
Q:How should we think about CES profit margins in 2026 given the mix issues and headwinds like GE9X and LEAP growth?
A:CES margins are expected to remain flat in 2026 despite headwinds from GE9X losses, lower spare engine ratios, and LEAP growth. Strong services revenue growth of $3.5 billion will offset these headwinds. Management highlighted a higher starting point for margins compared to earlier guidance and emphasized the positive trajectory for CES margins.
Q:What is the margin trajectory for CES beyond 2026, considering LEAP OE profitability and other factors?
A:Management expects CES margins to improve beyond 2026, driven by LEAP OE profitability, better LEAP aftermarket performance, and continued strong performance in wide-body programs like GE90. They aim to achieve $11.5 billion in operating profit by 2028, with a margin profile better than initially anticipated.
Q:Can you elaborate on the $3 billion annual R&D spend and its focus areas?
A:The R&D spend focuses on improving customer experience with ramping engines like LEAP and 9X, advancing the RISE technology development program, and supporting next-gen defense programs. Management emphasized the importance of innovation and technology in shaping the future of flight.
Q:Are CFM56 retirements still expected to pick up to 3%-4%, and is the shop visit peak still expected in 2027?
A:CFM56 retirements are trending lower than expected, with 2025 retirements at 1.5% and 2026 expected at 2%. Shop visits are projected to remain in the 2,300 to 2,400 range through 2028, slightly better than previous estimates. The peak in shop visits is still expected around 2027.
Q:What are the implications of the agreement with FTAI, and how should we think about free cash flow from 2026 to 2028?
A:The agreement with FTAI supports an open third-party aftermarket, providing customers with more options and reducing ownership costs. For free cash flow, management expects less contract asset favorability in 2026, offset by slower inventory growth. There are no abnormal factors in 2026 cash flow, and inventory management remains a focus area.
Q:Have there been any changes in customer behavior in the aftermarket, such as scope of overhauls or pricing pushback?
A:Management has not observed significant changes in customer behavior. Airlines continue to demand more services to support their fleets, with some expanded work scopes for older engines like CFM56. The demand environment remains robust, and management is committed to meeting customer needs.
Q:Review of Unclear Management Responses
A:Management avoided providing specific details on the investments required in the supply chain for LEAP production rates, instead offering general statements about process improvements and capital expansion. Additionally, they did not elaborate on the specific implications of the agreement with FTAI, leaving some ambiguity about its impact on the business.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
CES DPT
CFM engine
Celma
DPT order
Dallas
Dubai
FLIGHT DECK
GEnx
RD
alignment
asset
change
cost ownership
defense book
defense engine
end engine
engine delivery
engine ratio
engineering
experience
fighter
finish
flow conversion
interest income
investment elimination
leader
mid teen
midpoint
output basis
price engine
price investment
product wing
rate reduction
reduction share
segment financials
service equipment
service mid
service order
share count
system
wing cost
world class
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