This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.
spk06: Good day, ladies and gentlemen, and welcome to the General Electric first quarter 2023 earnings conference call. At this time, all participants are in a listen-only mode. My name is Liz, and I will be your conference coordinator today. If you experience issues with the webcast slides refreshing or there appears to be delays in the slide advancement, please hit F5 on your keyboard to refresh. As a reminder, this conference is being recorded. I would now like to turn the program over to your host for today's conference, Steve Winokur, Vice President of Investor Relations. Please proceed.
spk13: Thanks, Liz. Welcome to GE's first quarter 2023 earnings call. I'm joined by Chairman and CEO Larry Culp and CFO Carolina Dijak-Hoppa. Some of the statements we're making are forward-looking and based on our best view of the world and our businesses as we see them today. As described in our SEC filings and on our website, Those elements may change as the world changes. As a reminder, similar to our fourth quarter call, our remarks will be brief today, reflecting the company we are now, and we'll move more quickly to Q&A. Over to Larry.
spk03: Steve, thank you, and good morning, everyone. Welcome to our first quarter as a new GE, a simpler and more focused GE. We are now GE Aerospace and GE Vernova, two industry leaders together. in their own rights. We're creating significant value today, underscored by strong first quarter results, 17% organic revenue growth with all segments up, more than doubling our adjusted profit with margin expansion in all segments, resulting in 27 cents of adjusted EPS and positive free cash flow. This performance reflects robust market demand for our innovative technologies and services and we're operating leaner and more focused businesses. Services proved again, they're clearly one of our best assets, representing more than 60% of revenue, given not only the resiliency and higher margins we enjoy, but the fact they keep us in daily contact with our customers. Since our investor conference in March, GE Aerospace has continued to see tremendous commercial momentum, delivering double-digit growth on the top and bottom lines. Our execution at GE Vernova is tracking well with continued signs of progress in renewable energy as power continues to deliver. Now with GE Healthcare on its own, we're focused on launching these two businesses as independent investment-grade companies. Further, we also continued to simplify the balance sheet, partially monetizing our air cap stake, closing out our Baker Hughes stake, and calling half of the preferreds. We also named two new exceptional board members, retired US Air Force General Darren McDew and Jessica Aul, both of whom have deep domain expertise in aerospace and energy, respectively. We completed consultations with our European Works Council, which allows us to build the teams with both internal and external leaders for these standalone businesses. We're also advancing the internal rewiring to separate the businesses. This includes working through our legal entities, tax, organizational, and capital structures, as well as standing up boards for both businesses. Though rest assured, job one remains our operating performance, which we'll dive into in more detail momentarily. So a big thank you to our outstanding teams, particularly our separation management office that is leading these efforts, as well as the vast majority of our global employee base that's focused daily on serving customers. These businesses are ready to deliver and realize our full potential as independent industry leaders. With that, Carolina will take you through our results.
spk05: Thanks, Larry. Turning to slide three, which I'll speak to on an organic basis. In the first quarter, top-line momentum was strong, with robust market demand and execution driving growth. Orders increased 26%, all segments up. Equipment was up significantly, led by renewables, almost doubling its order intake. Notably, grid took two large HVDC orders with Tenet, and U.S. onshore wind is seeing the initial positive impact of the Inflation Reduction Act, including higher margin orders. Services was up 12%, largely driven by commercial aerospace activity. Revenue also increased double digits, with strength in both equipment and services. Aerospace was a significant driver with substantial leap engine deliveries and shop visit growth, and were encouraged by equipment growth in other areas, such as gas power and grid. Adjusted margin expanded 330 basis points, driven by services volume, price outpacing inflation, and productivity. Together, doubling operating profit and debt reduction drove substantial accretion to adjusted EPS, up 36 cents year over year. free cash flow was 102 million, positive. Importantly, it was up 1.3 billion year over year, with half of the improvement from earnings and half from working capital. From a flow perspective, this was driven by higher earnings and some AD&A timing, partially offset by working capital as we built inventory to support second half growth. In addition to the strong earnings results, this was GE's first positive free cash flow in the first quarter since 2015. This achievement reflects our team's intense focus in sealing discipline processes to enhance linearity and eliminate waste while driving operational efficiency and improved earnings and cash flow. A moment on corporate. Adjusted costs were down over 10% year over year, primarily driven by ongoing cost-out efforts and interest income, as well as improvement in digital. For the year, we expect costs of around $600 million, half the amount in 2021, and in line with reduced corporate needs and progress setting up standalone cost structures. At insurance, as previously discussed, we now have adopted the industry-wide accounting standard for LDTI, and we implemented first principles models. As of the end of 2022, the impact from this transition was $2.7 billion reduction in gap equity. These changes, including first principles, did not impact cash funding. We also funded the expected 1.8 billion during the quarter, in line with the permitted practice. Overall, we're pleased with the first quarter, delivering significant growth, margin, EPS, and cash improvement. Based on this performance and market demand, we are raising the low end of our full-year adjusted EPS range by 10 cents, and our free cash flow range by $200 million. So we now expect adjusted EPS of $1.70 to $2 and free cash flow of $3.6 to $4.2 billion. And on that positive note, back to you, Larry, to discuss the businesses.
spk03: Carolina, thank you. Starting with GE Aerospace, as many of you heard from us just over a month ago at our Customer Technical Education Center in Cincinnati, a premier franchise with leading value propositions for propulsion and systems in both commercial and defense. With our highly differentiated technology and service portfolio, we're redefining flight for today, tomorrow, and the future. Today, we're focused on partnering with air framers, airlines, and lessors to drive stability and predictability as they ramp. For tomorrow, we're focused on growing and optimizing our next generation of engines, A recent proof point, our record-breaking deal with Air India with 800 LEAP, 40 GNX, and 20 GE9X engines plus services. And for the future, we're developing next-generation technologies like RISE hybrid electric and sustainable aviation fuels to better serve our customers and deliver growth. I'm extremely proud of how our team continues to make progress on these priorities, running the business with lean principles in a more decentralized manner with intensity, discipline, and focus day in and day out. Looking at the market, the recovery has strengthened as the world is eager to travel. GE and CFM departures continue to improve, currently at 97% of 19 levels, and we still expect to be back to 19 levels later this year. To that end, we delivered strong results driven by this commercial momentum. Orders were up 14%, revenue was up 25%, driven primarily by services and commercial engine deliveries. Profit improved up over 40%, and margins expanded due to services volume, pricing, and productivity, which together more than offset negative mix, inflation, and investments. Commercial engines and services performance was particularly robust with 35% revenue growth. Commercial engines revenue grew over 30%, with LEAP deliveries up over 50%. To support our customers, LEAP spare engine deliveries will be more first-half loaded, but we expect this to normalize in the second half, remaining roughly in line with 2022 for the full year. Services revenue also grew over 30%. Internal shop visits increased over 30%, and external spare parts was up over 20%. Favorable pricing and customer mix also contributed to the margins. We recently welcomed two new members of our LEAP MRO network, Standard Aero, and ST Engineering. Our external network for LEAP is now up to five partners, creating a highly competitive environment that drives a lower cost of ownership for our airline customers. Today, third-party MROs licensed by CFM service about 70% of the CFM 56 shop visits. So this is a model that customers know well and trust today. In the supply chain, we saw areas of improvement with material inputs and LEAP shipments improving sequentially, thanks largely to our lean efforts. However, output continued to be impacted by material availability and supplier challenges, particularly in defense, where revenue declined 2%. Lean is critical to improve process capabilities and increase material availability from our suppliers. In both commercial and defense, we use rigorous daily management with problem solving across product lines, supply chain, and engineering teams. This helped drive commercial engine deliveries to be up 40% year over year and recovery of roughly 70 engines in defense the first week of April. Predictability, stability and improved delivery remain key for us going forward. We're also constantly innovating for the future. Our XA100 is the only engine tested and ready to ensure the U.S. maintains air superiority this decade, especially critical as geopolitical threats grow. XA100 provides 30% more range, 20% greater acceleration, and twice the thermal management capacity. This engine is the most cost-effective option to meet the needs of the U.S. warfighter for decades to come. Looking ahead, despite the encouraging start, as we shared in March, over the next few quarters, we'll face headwinds from tougher comps and the mixed impact from equipment growth, inflation, and investments. However, we continue to expect to deliver significant profit dollar growth and higher free cash flow in 2023-21. primarily from strong volume across engines and services, combined with better pricing and productivity. We'll share more details on our progress and our future as a standalone industry leader at the Paris Air Show in June. I look forward to seeing many of you there. Turning to Vernova, this business is already demonstrating how well it's positioned to support our customers through the energy transition. We're seeing favorable secular growth tailwinds underscored by IRA momentum and the need for sustainable, affordable, resilient, and secure energy. This quarter at renewables, we saw continued signs of progress. We've talked about the IRA as a game changer, providing greater near-term and long-term demand certainty. We're already seeing this play out with significantly better visibility into our commercial pipeline over the next several years compared to this time just a year ago. Orders nearly doubled, led by grid, with strong growth across the businesses, including two large HVDC orders needed to connect new renewable sources to the grid. Onshore equipment orders also increased, with North America growing more than threefold. Revenues were up mid-single digits organically, driven primarily by grid and offshore wind. Looking at services excluding repower, core services grew again on both orders and revenue. We saw both sequential and year-over-year profit improvement driven by price and cost reduction benefits, primarily at Onshore and Grid. To break it down by business, at Grid, we're clearly making progress. All three businesses saw strong top-line growth with continued productivity gains in the first quarter, and we remain on track to achieve modest profitability for the full year. At Onshore, we're executing the strategy we shared with you in March. focusing on select markets with a simplified range of product offerings. This, in turn, is yielding better margins in our backlog for longer-term profitable growth. And this quarter, we saw both sequential and year-over-year margin improvement, mostly in U.S. equipment. And we continue to drive pricing with positive price cost. Our proactive fleet enhancement program is now roughly 20% complete. At the same time, we're still rationalizing our onshore cost structure. As mentioned last quarter, headcount is down roughly 20% relative to last summer, with more to do. And this has already begun to generate some savings. At offshore, we're managing our existing Hollyod X backlog. This quarter, revenue more than doubled as we produced more nacelles. As discussed in March, we still expect offshore to remain a near-term challenge as we execute our initial projects and improve our learning curve, both in terms of product cost and operational capabilities. Scott and the team are laser-focused on managing project costs and disbursements while improving our underwriting processes. Looking ahead for renewables overall, we're expecting a second quarter loss roughly in line with the first quarter. We continue to expect significant second-half improvement year-over-year in onshore wind which will be partially offset by offshore wind. As we said in March, we see an inflection to profitability for renewables in 2024 from higher U.S. volume, price, and continued costs out. Moving to power, we delivered another quarter of solid growth led by gas power, including both equipment and services. This business is a long-term cash generator and will help fund future growth at GE Vernovo. Starting with the market, GE gas turbine utilization grew low single digits despite a milder winter in many markets, providing stable baseload power to customers transitioning from coal to gas or needing new power for electrification. We also continue to invest for the long term, including decarbonization pathways that will provide customers with cleaner, more reliable power. Focusing on the quarter, power delivered solid top-line growth with services up 8% organically, driven by gas power, heavy-duty gas turbine, transactional services, and aero derivatives. Equipment revenue grew double digits as we shipped five more HDGD units compared to last year. This included two incremental HA units, adding to our large gas installed bays, which will service for years to come. Margins expanded despite a higher mix of HDGD HDGT equipment sales, we continue to manage inflationary pressures with price and continued productivity gains. Looking beyond the quarter, similar to last year, we see roughly 70% to 75% of power's total year profit in the second half based on higher expected gas outage volume. Overall, power remains on track to deliver on its 23 commitments, including strong cash conversions. In summary, I'm encouraged by the progress we're making across GE Vrnova. With the secular tailwinds, the impact of lean, and our investments in the portfolio, I see tremendous value creation opportunity for years to come. So to wrap up on slide seven, the GE team is off to an encouraging start in 23, and our progress continues. Our missions at both GE Aerospace and GE Vrnova matter to the world. and we're crystal clear on how we plan to deliver on them. GE Aerospace has a bold vision to define the future of flight. With nearly 3 billion people flying with our engines under wing last year, this exceptional franchise is growing amidst the pronounced industry ramp. At GE Vrnova, as the world looks to accelerate efforts to decarbonize and electrify, we're uniquely positioned with our solutions which provide 30% of the world's electricity today. Our renewables business is showing continued signs of progress with clearly more to do, while power continues to deliver solid growth. Simply put, we're improving how we operate, how we innovate, and how we deliver for our customers. I couldn't be more excited about the future and where we're going. So with that, let's go to Q&A.
spk13: Steve? Thanks, Larry. Before we open the line, I'd ask everyone in the queue to consider your fellow analysts and ask one question so we can get to as many people as possible. Liz, please open the line.
spk06: Ladies and gentlemen, if you wish to ask a question, please press star 1 1 on your telephone. If you wish to withdraw your question or your question has already been answered, please press star 1 1 again. Our first question comes from Robert Spingard with Milius Research.
spk11: Rob? Good morning. Good morning, Larry.
spk05: Good morning.
spk11: Good morning. As you might expect, I'm going to start with an aerospace question, if that's okay. I want to ask about the LEAP. With the LEAP engine, as the program matures and the time on wing improves, and the installed base grows, can you eventually get LEAP aftermarket margins to the CFM56 level?
spk03: Rob, as you know, the two, and we talked about this, I think, at some length at CTEC back in March, the two are at very different places in the lifecycle, right? But as I think Mohamed shared with you, there are a whole host of things that we have learned along the CFM56 journey that we have every intention of porting back into the LEAP. We still need to get LEAP both from a new unit and from a services perspective to profitability. That is a mid-decade task force here in the near term. I think we're making good progress in that regard. But there's no reason we shouldn't have that level of expectation or that you should have that level of expectation over time with the LEAP. There's a lot that goes into that. We mentioned in the prepared remarks the expansion of our third-party partner network with Standard Aero and ST Engineering coming on board. That's another step in the right direction to set this business up to have a similar profile over time.
spk11: Larry, would you say when you think about productivity versus volume versus initiatives, you know, of pricing, et cetera, when we think about that margin expansion, how would you bucket those?
spk03: Well, Rob, I think they all matter, right? Again, we're in the midst of an incredible ramp. There are a whole host of things that will benefit us from that volume. That said, that as we improve performances, we improve on-wing periods, that will certainly accrue to the margin profile. But there's a whole host of things just directly with respect to the cost structure, be it a new engine or aftermarket services and parts that will also be something that I'm sure for the next 10 or 15 years we'll be looking to drive improvements in year in, year out. So it's really all of the above.
spk06: Our next question comes from Nigel Coe with Wolf Research.
spk09: Thanks. Good morning, everyone.
spk06: Morning, Nigel.
spk09: Yeah, it's definitely a simpler company, that's for sure. So I thought the narrowing in the losses from 4Q to 1Q renewables was very encouraging on the lower sales and volumes. So it just seems that you suggest there is an underlying improvement in the cost base, et cetera, and the backlog quality. Maybe just talk about, you know, number one, is that correct? And secondly, as we go into the second quarter, can we expect to see another narrowing of losses, Q over Q? And then maybe just touch on the order strengths. You know, I think there's about $5 billion orders. I know there's a large HPDC order in there, but maybe just talk about what you've seen in onshore and whether you've got better visibility on that onshore ramp in the second half of the year.
spk03: Nigel, thank you. I think that we take a great deal of conviction about the path forward, just given the last couple of quarters, and frankly, the lack of surprises, right? You've seen that. We've seen that. Neither of us have been happy about that. But credit to the team, I think we've gotten to a place where despite the losses There are fewer surprises, and we're seeing less of that. The drivers are just what you're highlighting here, both in terms of higher quality top line, as we have improved the pricing and the selectivity of the orders that we're taking on, and in turn, the adjustments that we've made to the cost structure. We talked about the headcount reductions, but that is really only part of what we've done from a cost and from a productivity perspective. The quality improvements help and will continue to help over time. So, I think at onshore wind, I would certainly expect to see, again, a slight improvement in the second quarter, but it will be in line with what we've seen here in the first. It's really a second-half story, and everything that we see today continues to give us the confidence that we'll see an improvement in onshore in the second half, and we should be profitable. We'll see, I think, some challenges as we look at the segment overall. given some of the ramp dynamics we've talked about in offshore. But between what we'll see in the second half with onshore, the improvements at grid, again, this will be a year of profitability at grid. I think we're feeling good about the setup as we exit 23, getting ready for 24. Carolina, anything you'd add there?
spk05: Yeah, so therefore, the second quarter, we are expecting similar losses to the first quarter. And, you know, Larry touched on or talked about the onshore. We also continue to see sort of progress in grid come through and then we know that offshore wind is sort of an investment and we have the learning curve there where we expect to sort of move down that curve with sort of cost out and better project execution. So that's why in 23 we do see a headwind from profit and cash. But overall moving towards a stronger second half in 2023 on profit and then getting positive in 2024.
spk06: Our next question comes from the line of Sheila Caillou with Jefferies.
spk07: Good morning, everyone. Thank you.
spk03: Good morning, Sheila.
spk07: Good morning. Thanks. On Q1, it seems like a strong start to aerospace margins with 19% versus the implied guidance of 18% margins. And this was despite leap of 53% year over year. Any detail on where exactly you saw net price and productivity come through the most? And you didn't mention this in the script, Larry, but any on-wing reliability issues and how much does that impact profitability?
spk03: Sheila, you're spot on. We're very pleased with the margin that we posted here in the first quarter. But I think we continue to try to temper expectations with respect to margin expansion this year as we go forward sequentially. A lot of things really broke our way. in the first quarter, I think we still expect to have a robust dollar profit growth year, right? With the guide that we have of 5.3 to 5.7 billion, we should be up at the midpoint 15% year-over-year in dollars. And there were a number of things that broke our way. We didn't see as much mixed pressure as we thought we would see in the first quarter. The strength in services certainly helped, but that mixed pressure both within equipment and between equipment, and services will, I think, evolve through the course of the year where we will see equipment grow in all likelihood at a rate greater than services, particularly given the LEAP shipments. And we know that inflation will continue to be a headwind for us. We're encouraged by some of the moderation that we see in certain commodities, but particularly in aerospace, given the fact that We've got so much in inventory. There's 22 inflation that we still need to work through the P&L, which will play out through the course of the year. That said, I mean, we feel very good about the margin structure in this business, as we shared with you in March. But all in, I think we'll see moderation off of this 19% level in the first quarter. But net-net, still a very good profitability growth year for GER space.
spk06: Our next question comes from Julian Mitchell with Barclays.
spk01: Hi, good morning. Maybe just my question would be around free cash flow. Should we expect sort of second quarter to be around break-even-ish in common with prior years? And then sort of two specific drivers I was curious about. One was that 500 million AD&A headwind. I saw it was a source in Q1. how you see that playing out the balance of the year and just sort of testing your conviction level in that wind down payments, three to four billion free cash tailwind you talked about back at Q1, just sort of how you see that and the AD&A playing out from here over the balance of the year and what that Q2 free cash might be. Thank you.
spk05: So Julian, let me take that. So if we look at the second quarter, Basically, we are expecting to build on the strong first quarter. So see the similar dynamics coming through in the second quarter. And that starts with our strong orders leading to high single-digit growth. If we look at our profit, EPS, we expect it to be 40 to 50 cents. And again, sequential volume growth, especially from aerospace strength, but also the gas seasonal outages. We would expect price to continue to outpace inflation. continue to see productivity come through. But we do expect some mixed pressure that Larry was mentioning from the big ramps in Leap and Halley at X. So if you look at it a little bit business by business, so for aerospace, that's why we would expect the margin rate to be lower sequentially and contract because of that high equipment growth. For renewables, as I mentioned, we expect losses to be similar in the second quarter to the first. And for power, we expect revenue and profit to be slightly down year over year, really with the second half loaded outage and air derivative shipments. And that brings me then to the free cash flow. So we expect free cash flow to be around break-even. And it's a combination of the earnings growth and some positive working capital, but then offset by the AD&A and higher tax payments. So if you look at it sort of first half this year compared to first half last year, It's about a billion of improvement in the first half. And you asked sort of sequentially, quarter by quarter. I would say from the free cash flow, you also have to remember the size of revenue in Q4 that we collect in Q1. And now in Q2, we will be collecting on a lower revenue number from the first quarter. So that's why there's a bit of pressure there. You also asked about AD&A. So AD&A was slightly positive in the first quarter, but we expect that to be negative half a billion for the full year, so basically shifting to the right. And when it comes to wind, you asked about the three to four billion of orders. I would say it's still early in the year, and we have strong relationships with our customers, but those are large and complex orders, and exactly when they convert to orders, that can shift a bit through the quarters.
spk03: Julian, I would just add that with respect to the orders in NWIN in North America, I think we feel as optimistic as we did back in March. We're in frequent contact with the administration. They're well along in the work that they're doing to release the final guidance. We expect to see that this quarter. And I think we said in March, every week matters here. So the sooner businesses' customers have certainty, the better. But we're quite optimistic.
spk06: Our next question comes from Seth Seifman with J.P. Morgan.
spk02: Thanks very much. Good morning. Good morning, Seth. So I wanted to follow up on the commercial aftermarket and kind of the strength in the first quarter and the moderation that's implied through the remainder of the year. It seems like sales have been running in kind of the 3.5 to 3.7 range the past three quarters. Seasonally, we probably see an uptick in the second quarter, which would imply another quarter of very healthy growth kind of above the guidance range for aftermarket for the year. And so is there anything that really gives you pause about the second half of the year? And, you know, how are you thinking about where, you know, what the upside might be to that aftermarket forecast?
spk03: Well, I think you're right, Seth, in terms of just the strength and the momentum that we see here, right? I mean, services for a full year, we think will be up high teens to 20%. So it just, it couldn't be more robust, and that's pretty well balanced, both in terms of shop visits, spares, and the like. And I'd say that we see that kind of broadly across the portfolio from a geographic perspective as well. We're not unmindful that there is some discussion around how long the flying public will indeed fly at this pace. We'll see how that plays out, but you've heard from a number of the airlines already this earnings cycle where the CEOs, I think, are uniformly bullish, not only here but in Europe. If any of that edge came off, as you know, we're not necessarily tied to ticket prices or load factors. We're tied most directly to departures. That's a good structural aspect of our business. But we do know we get into some tougher comps as we move into the second half of this year. So we still expect to have a robust top line and that will bring with it the margin in cash flows that we've talked about already. But net, we feel very good about the prospects. Just on the margin, again, very pleased with the first quarter performance, but we do know that we're going to see more mixed pressure, both given the equipment growth versus services and within equipment given the leap ramp, in addition to some of the lagging inflationary pressures and the investments that we are and we want to make in the business. But net-net, this is going to be a very good year for GE Aerospace from a profit perspective with the dollars at the midpoint up 15% year-over-year.
spk06: Our next question comes from Andrew Kaplowitz with Citigroup.
spk00: Hello, can you guys hear me?
spk06: Hi, Andy.
spk00: Hey, good morning. Could you just give us an update, Larry, on what milestones you need to see to make sure GE is on track for Venova separation in early 2024? Obviously, you saw a strong growth in onshore orders. How much does better U.S. onshore utilization help you as you move forward? And you mentioned similar profitability in Q2 and renewables versus Q1. What's your line of sight there? toward that decent step up in earnings past Q2? And maybe give us a little more color on your focus on improving product quality and the cost up program you have at this point.
spk03: Well, Andy, I think you've really outlined the answer to your question in many ways, right? We know it won't be the balance sheet. We know it won't be the internal preparation that will pace when we spend GE Vernova. It will really be a function of business performance. And again, I think we're really encouraged by what we've seen the last couple of quarters, not only in terms of the sequential progress, but the team's ability to deliver on those commitments. We know we've got a lot of work to do here in the second quarter, in the second half, to continue the progress in onshore wind. But between the prospect of better volumes, again, better pricing, combining with those volumes and all of the work that we've done to improve the cost structure, I think sets us up for that positive year in 24. Really excited about what we're seeing at grid. We've talked about the big orders out of Europe a couple of times here. Don't let that mask the underlying improvements, both in terms of price and cost broadly across the grid portfolio. They'll be modestly profitable this year. And those are really the two big businesses within renewables, and that sets us up to work through some of these growing pains and offshore to position Vernova to go in 2024. You asked about the quality efforts at onshore wind. The list continues to be fundamentally a static list. I think we knocked off four or five of those items this quarter. We're about 20% of the way through that body of work. We'll probably get to Roughly half of that by the end of the year. We've got some more challenging, more time-consuming issues to knock off the list later this year. But again, I think the team is working the plan and doing all we can to help customers in that regard. And as we help customers, we help ourselves. So again, I think we are on track. A lot of work to do, but I think we're optimistic that that work will be done and GE Renova will be a standalone independent investment grade industry leader in the energy transition sometime early next year.
spk06: Our next question comes from Dean Dre with RBC Capital Markets.
spk12: Thank you. Good morning, everyone. Hey, Dean. Hey, I want to stick with renewables if we can. And could you give some specifics on how selectivity is working today? I mean, you had some, especially with regard to what was booked. and just how that reflects discipline underwriting and so forth. Thank you.
spk03: Dean, I would highlight two forms of selectivity. One is what you might think of as simply geographic. Credit to Scott and the team for being willing to say no or yes, largely on constructive terms, the opportunities outside of our core markets in the U.S. and in Europe. I think one of the challenges early on, and it's not unique to GE, Vernova, it's not unique to any evolving industry, we at times, I think, went after business with the best of intentions and and didn't get paid for the risks that we were taking, signed up to probably do things that in hindsight we shouldn't have. So what you see or what you hear us refer to with our selectivity effort is just to be more discriminating, more targeted in the geographic markets, let alone the applications that we'll pursue. That's one. I'd say secondly, as the market shifts here rapidly, from abundance to scarcity, we really have a finite amount of capacity in the short to medium term to sell. And I think here again, credit to the team, we're really just being as smart as we can about making sure that we're fully and fairly compensated for the technology that we bring and the solutions that we offer. And it's the two of those combined that you're beginning to see help the margin profile in onshore wind that will play out even more so as the IRA kicks in and we see more volume come through the P&L, let alone the change to the cost structure that I mentioned earlier. I hope that gives you a full answer, but that's how we're going about this day in, day out, opportunity by opportunity.
spk05: And we're also following up. very clearly on not only what the margins are in the P&L, but also in orders and even in tech selects and a much sort of stricter strike zone for that.
spk06: Our next question comes from Josh Pokerwinski with Morgan Stanley.
spk10: Hi, good morning. Good morning, Josh. Larry, I just want to follow up on that last question on pricing in particular. I guess if you look at order dollars that you printed versus gigawatt orders or unit orders, it seems like a healthy gap in there. I would imagine most of that is price, although maybe some mix as well. At the same time, I guess we're not fully clarified from the IRS on some of this rulemaking language. Is Is price today sort of at the run rate you would expect, or are there other dynamics that maybe emerge here with more clarity about sources of production and domicile and some of those elements?
spk03: Well, I think that we will continue to see this market evolve. The White House, the administration, has not issued the final guidance. They are well along. We've had a number of opportunities, as others have, to share our views both on the substance and the timing of the key provisions. I think we'll see that play out here this quarter. And in turn, customers will react to that, right? They have acted in anticipation. But when the rules are set and the guidelines are clear, be it around the domestic content rules, the manufacturing credits and the like, I think you'll see things pick up. What I was talking about a moment ago with Dean with respect to how we think about selectivity and price will continue to evolve as well. So I don't, in the spirit of Kaizen and contingent improvement, I wouldn't say that we're somehow at a peak. We'll continue to make sure we push our cost structure forward. as best we can, and are fairly compensated for the value that we create. That pretty much is the setup here, and in turn, why we think we have the path not only to profitability, but far better margins than you've seen in this business the last couple of years.
spk05: If you think about it, we're talking about tech selection orders. It will take about a year before you see it in the P&L, so of course that delta between price and cost in the P&L will take a little longer to come through because of the cycle.
spk06: Our next question comes from Chris Snyder with UBS.
spk04: Thank you. I wanted to follow up on some of the prior comments on aviation top line. So the segment grew another like mid 20% organic in Q1. The guide implies about low teams by my math for the rest of the year. And I certainly appreciate the comps get tougher, but I was hoping you could provide some color on how we should expect the cadence of that organic growth deceleration over the rest of the year. In the longer term, I would appreciate any views or color on how far this segment is from seeing organic growth compressed back to the mid to high single-digit rate called out at the investor day for the long term. Thank you.
spk03: Well, again, I think as we look at the full year here, we would expect services to continue to grow. We think services will still be up high teens to 20% all in for the year. But we'll see equipment grow more rapidly, primarily on the back of the leap ramp, and defense shipments improving. We were down 2% in the first quarter. We still expect, once we clear a number of these delivery issues, that we should be up high single digits in defense. And that's really what I think you'll see through the course of the year. Keep in mind, we've got the tougher comps in services coming in in the back half, particularly given the nature of the sequential ramp here. But all in, we've got a lot to do to deliver on those numbers, and those numbers don't assume that we fully clear our backlog or past two backlogs either. So I wouldn't want to commit to that upside, but certainly we're working as hard as we can within our own facilities and with our suppliers to deliver as much as we possibly can. In terms of when demand normalizes, that's probably a question for another day. Again, given the OE ramp, given the services ramp back on the back of what we're seeing broadly with respect to departures, We're optimistic about not only this year, but the near term. I think we're on the verge of no longer talking about where we are vis-a-vis 2019. That'll be exciting, right? We can get to a point where we're just talking about year-over-year growth.
spk13: Yeah, and I would just add, Chris, just to your specific cadence numbers, just look at the comps. Third quarter, fourth quarter steps down pretty considerably, particularly in the fourth quarter. just based on that comp math, and we can talk about it later.
spk06: Our next question comes from Joe Ritchie with Goldman Sachs.
spk13: Thanks. Good morning, everyone.
spk14: Good morning, Jeff. So just going back to renewables for a second, you know, the orders, the wind turbine orders were up 75%. I know up until now, I know Scott's been pretty reluctant to book any offshore projects. I'm curious whether this includes any new offshore units. And then secondly, on onshore wind, given the booking so far this year, I'm curious, what's the expectation for onshore wind profitability exiting the year? Can you turn a profit in onshore wind exiting 2023? Thank you.
spk05: So if we start with your question on orders, so offshore wind, we didn't have orders in the quarter as expected, and that was exactly what Scott was talking to. When it comes to onshore wind, we saw really strong bookings, and we mentioned that in the beginning of the call. So it was great to see a tripling of onshore wind orders compared to last year, and that's mainly North America equipment up, so basically IRA driven, and we saw good progress coming through. from that so the area is the game changer we said it would be and we're starting to see it come through so if you combine then the growth on the top line as well as the self-help actions that Larry mentioned where we expect to be done with about half of those when we exit the year and put on top of that the pricing work that we're doing as well as continuing cost out We do expect to see the year for onshore wind when it comes to a profitability, or in this case, a reduction of losses to be a positive step through the quarters. I would say especially in the second half, because in the first half, we still have rather low US orders that we are delivering on. So the mix is a bit heavy in the first half. So good improvement in the second half. And that is also the trajectory that will take us to significantly better results and low single-digit plus in 2024 when it comes to profit.
spk13: Joe, thanks. Liz, we have time for, let's make time for one last question. Thanks.
spk06: Our next question comes from the line of Gautam Khanna with Cowen.
spk08: Yeah, good morning, guys. I was wondering if you could elaborate on... Yeah, thanks. I was wondering if you could elaborate on... supply chain and aerospace, what the pacing items still are, and if you have any metrics around pace of improvement, you know, we've seen in Q1 versus maybe Q4 or late last year anyway, second half of last year.
spk03: Well, again, I think this is a daily, weekly effort where we're encouraged by some of our leading indicators. I'd point to LEAP probably That's the platform that garners the largest portion of our attention today, right, with deliveries up 50%, sequentially up 10%. And that's probably just as important a number as we think about how we deliver 1,700 units this year as we shared in March. We are making progress. I think if you look at supplier on time delivery as one example, if you look at material inputs being another, just our ability to hit our targets on a weekly basis internally, I see signs of progress. I sit with Russell and his team. We go through this on a regular basis. I'm encouraged by the intensity of the daily management that we're bringing, not only to our own operations, But with our suppliers, I had an opportunity to walk a number of our own shops and do the same with some of our suppliers in the first quarter and to see how we're having that impact. But it's still challenging. I don't want to in any way suggest otherwise. But I'm encouraged by what we're doing. I think we've learned a lot in the first quarter from our efforts in and around LEAP that we are porting to our other product lines. That will be particularly important in defense. You saw that we cleared some of what we left behind in March and early April. But that said, there's a lot around that daily management intensity and discipline that we've seen in LEAP that we need to make sure is part of our defense business and those core facilities through the rest of this year to deliver on that high single-digit number.
spk13: Great. Larry, any final comments?
spk03: Steve, I went by quickly. Well, just to close, obviously an encouraging start to 2023. Our plans to stand up GE Aerospace and GE Vernova as two leading independent companies are advancing. We appreciate your time today, your interest in GE, and your investment in our company. And again, we hope to see many of you at the Paris Air Show in June for our GE Aerospace presentation.
Disclaimer