LIVE NOW: Q1 2026 GE Aerospace Earnings Conference Call

Base first quarter 2026 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, Blair Shore from the GE Aerospace Investor relations team. Please proceed.

Thanks, Liz. Welcome to GE Aerospace's first quarter 2026 earnings call. I'm joined by chairman and CEO Larry Culp and CFO Rahul Guy. Many of the statements we're making are forward-looking and based on our best view of the world and our business as we see them today. As described in our SEC filings and website, those elements may change as the world changes. Additionally, Larry and Rahul will speak to total company and corporate financial results and guidance today on a non-GAAP basis. Now, over to Larry.

Sorry. Thank you and good morning everyone. We started the year with over 20% top-line and earnings growth. Orders were up 87% with CES up 93% and DPT up 67%. Revenue increased 29% with CES up 34% while DPT was up 19%. Operating profit was $2.5 billion up approximately $380 million driven by services volume and price. Margins, as expected, decreased 200 basis points to 21.8% from the impact of installed engine growth, investments, and inflation. EPS was $1.86, up 25% from increased operating profit, a lower tax rate, and a reduced share count. Free cash flow was $1.7 billion, up 14%. Largely driven by higher earnings. Working capital and AD&A combined was nearly a $500 million source with strong utilization billings, partially offset by the expected timing of compensation payments. Going deeper on our 25% EPS growth this quarter, growth in operating profit drove $0.29 or nearly 80% of the improvement in EPS with increased profit in CES and DPT. This was partially offset by higher corporate cost and eliminations which were up around $120 million, roughly half from an increase in eliminations and half from an increase in environmental health and safety expenses off a low base. A lower tax rate and reduction in share count drove an additional $0.10 of EPS growth. Tax rates decreased three points to 14.7% from earnings mix and benefit from recent tax legislation. Share count was down 24 million from our previously announced capital allocation actions.

Turning to CES in the first quarter, orders grew 93% with services up 49% and equipment more than tripling to nearly $8 billion. Revenue increased 34%. Services grew 39% with internal shop visit revenue up 35% from higher volume, including LEAP internal shop visit growth of over 50%, and increased work scopes. Spare parts sales were also up over 25% from improved material availability and growth of external LEAP shop visits. Equipment revenue grew 20% with engine deliveries up 50%, including LEAP up 63%. Widebody deliveries were also up over 25% driven by GEnx, which was up even more. Profit was $2.44 billion up nearly $450 million from higher services volume, price, and the absence of charges related to estimated profitability on long-term service agreements taken in first quarter of 2025. As expected, margins were down 230 basis points to 26.4% driven by installed engine growth including 9X shipments and investments. Both installed engine and spare engine volume increased year-over-year, but growth in installs outpaced spare engine growth. Overall, CES continues to deliver meaningful growth largely driven by services as OE ramps.

In DPT, orders increased 67% including T408 engines for US Marine Corps CH-53K. Defense book to bill was above two for the second consecutive quarter. Revenue grew 19%. Defense and systems revenue was up 14% as units grew 24% driven by an increase in F110 and rotorcraft engines. Propulsion and additive technologies grew 29% with growth across the portfolio led by Avio Aero. Profit grew 17% from increased volume and price. Margins were down 20 basis points to 11.8% driven by mix, investments, and inflation. DPT delivered a solid first quarter with continued demand strength and improved output.

Moving to guidance on slide 12. Our first quarter exceeded expectations given stronger spare parts sales growth and shop business increase. We have a robust backlog supporting our growth for several years and we are taking actions to navigate the current environment due to the dynamic macroeconomic backdrop. We are maintaining our guidance across the board and as Larry mentioned, given our strong start to the year we are trending toward the high end of the range of low double-digit revenue growth, profit of $9.85 to $10.25 billion, EPS of $7.10 to $7.40, and free cash flow of $8 to $8.4 billion for total company. We are also maintaining our segment guidance for both CES and DPT with a similar trend toward the higher end. Our guidance is based on full-year departures growth of flat to low single digits and is underpinned by the following assumptions: fuel prices remain elevated above current levels through the third quarter and decreasing to current levels by year end; a near-term impact from fuel availability in certain geographical regions; global reduction in GDP growth impacting air travel demand. This guidance doesn't contemplate a global recession unfolding. Near-term orders continue to be strong and we expect the strength in the first quarter to continue into the second quarter with 95% of spare parts in backlog and all shop visits for the quarter already off. As a result, we are expecting second quarter services growth of high teens above our full-year guide and supporting total company year-over-year and sequential profit growth in the quarter. For full year, we now expect services revenue is up roughly $4 billion year-over-year from approximately $33.5 billion expected previously, supporting our increase of profit and cash to high end of the range. However, as we get into the second half, we are taking a more measured view given the evolving environment and have included the potential impact from deceleration in spare parts growth, lighter work scopes, delayed spare engine shipments, and reduced billings within our guidance. While the external environment remains uncertain, we are taking proactive actions, including managing discretionary spending and conducting reviews to assess risks and opportunities to support our customers. Overall, balancing the various factors, we are confident in our ability to deliver the high end of our guidance given our strong first quarter outlook for the second quarter and a substantial backlog. With that, Larry, back to you.

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, can you please open the line? Ladies and gentlemen, if you wish to ask a question, please press star 1 on your telephone. If you wish to withdraw your question or your question has already been answered, please press star 1 again.

Our first question comes from David Strauss with Wells Fargo.

Thanks. Good morning. Thanks for taking my question.

Thanks for all the detail on how you're thinking about the aftermarket, but just wanted to clarify. So Larry, it sounds like you ultimately do expect an impact on services growth from your lower departures growth forecast, but maybe it sounds like you're thinking more so in 2027 or carrying into 2027 than 2026 given your strong Q1 and the backlog that you have on the services side. And I guess in terms of how you're thinking this might play out, are you thinking at this point that there could be a pickup in CFM56 or GE90 retirements or you just expecting lower utilization to come through at this point? Thanks.

Yeah. And David, just to add to that, as we think about 2027, like you said we feel good about 2026 but having leading positions in both narrow body and widebody, 75% share of the narrow body cycles, 55% share of the widebody cycles is helpful in times like this when the traffic growth is uneven as it dampens the volatility that we see in the market. Also the fleet is young. You touched on the CFM56 and GE90. A third of the CFM56s have not seen their first shop visit. Two-thirds have not seen a second shop visit. And similar trends for GE90. 70% of the GE90s have not seen the second shop visit. And as we sit here in April, both the number of parked aircraft and the retirements are really low. In fact, the retirements in the first quarter for CFM56 were lower than what we experienced in fourth quarter. So we've not seen any increase in either of those two trends. And as Larry mentioned in his prepared remarks, as we've seen in prior cycles, air traffic has a strong recovery after every downturn. So if you see any impact here in the second half of the year, it is going to be a push out of demand versus a destruction. So again, it's hard to call 2027 just yet. It all depends on how the situation evolves over the next few months but it is early to call but overall we feel good about the trajectory that the business is on through this cycle.

Our next question comes from Sheila Kyu with Jefferies.

Good morning guys and thank you. Maybe just to follow up on David's comments, Larry and Rahul, services up 39% in Q1, great quarter both on shop visits and spare parts, and Q2 expected to be up high teens implying only mid to high single digits in the second half. So maybe delving a little bit more into visibility you guys have through the summer and Rahul, you mentioned push out of demand, not demand destruction. I guess how do we think about where you guys are seeing most potential risk post Q4 whether it's narrow bodies or wide bodies and how do we think about retirement rates staying low today and potential assumptions for 2026 and 2027.

Quarter right, we said Larry and I both said 95% of the spare parts for second quarter are in the backlog, all the engines that we need to work on for second quarter are in the shop, and Larry also kind of provided a full year shop visit view here that we are about a third oversubscribed right now from what's already off-wing and what will come off-wing here in the second and the third quarter. So that gives us confidence around 2026. Now here as we go into 2027 and where the risks may come. I think we touched on, you know, the retirement you touched on retirement rates. Now keep in mind that the retirement rates that we resumed for 2026 for CFM56 are in the 2% range and what we saw in the first quarter is sub 1%. And as we get into 2027, we've already assumed in our prior outlook that retirements increase to 3 to 4%. So we all, you know, just the outlook that we've provided, we've factored in certain increase in retirements. Now we've not seen that. We are not seeing anything concerning just yet. Our order trends are holding. But it is more with what is unknown and thus a little bit of caution, prudence, whatever words you want to use for the second half of the year. And I think time will play out and give us more visibility into 27. But overall, listen, the business is strong, franchise is strong, and I think we should be able to navigate anything that comes, you know, that evolves here over the next few months.

Our next question comes from Ken Herbert with RBC Capital Markets.

Yeah. Hi, good morning. Larry and Ru really strong, yeah, really strong spare parts orders in the first quarter. I'm just curious, especially your comment on March strengthening from the first two months. Do you get a sense that there was any pre-buying by your customers on the aftermarket ahead of potential disruptions or concerns down the road? I'm just curious as to what was underlying the real strength in orders in the quarter and if there could have been any pull forward in the order demand. Thank you.

Our next question comes from Christine Leeweek with Morgan Stanley.

Hey, good morning everyone. You know, Larry, Rahul, you talked a lot about demand, and I just want to dive a little bit deeper here. You know, you talked about 2Q and 3Q engine removal pipelines are above your shop visit guide. So, holding the macro environment you called out, is this higher removal pipeline contemplated in your upper reach 2026 outlook or could we see revisions higher in the year if oil resolves in 3Q?

Yeah. And Christine, just as Larry said, to get to a higher shop visit number that is not factored into our guidance. So what we'll need to see is we'll need to see better material flow through here than what we are currently factored in to burn some of that delinquency that exists on both spare parts and the shop visits out. So that, to your point, will take our services guidance above where we have factored in around $4 billion of growth this year.

Our next question comes from Scott Deutsley with Deutsche Bank.

Hi, good morning.

Raul, I was wondering if you might share with us an update on LEAP aftermarket profitability and particularly how LEAP aftermarket margins are trending in 2026 relative to 2025 and then love to get your latest thinking on the path to margin expansion on the program beyond 26 and over the long term. Thank you.

Yeah. No, Scott, on LEAP, the services business is trending really, really nicely. We're expecting a further improvement this year on margins. Trends have been good for the first half of the year here, and it's coming from a few things. It's coming from increased volume right that we are driving in our shops. It's – Larry spoke about the repairs that we are developing in our aftermarket business, and this year we expect the number of repairs that we're developing on LEAP to double over what we developed last year. So that is helping reduce the cost of the shop visit. The external channel is coming up nicely as well. We are at you know now about 15% of our shop visits for LEAP are performed by third parties. That number was close to 10% just 18, 20 months back. So that part of the business is developing nicely. So, as you know, if you put all that together, as you think longer term to your second part of your question, we do expect the LEAP service margins to start to get to overall CES service margins by the time we get into 28-ish time frame. So really pleased with the progress, you know, for a business that was just kind of break even two years ago, I think made a lot of progress here in the last 18 months.

Our next question comes from Robert Stalard with Vertical Research.

Thanks very much. Good morning.

Um, just want to follow up on slide five and that spare parts delinquency chart you've got in there. Is that continued march higher in delinquencies just due to continued demanding city supply chain strain and how long do you think it'll take to get that back down to a more reasonable number?

Our next question comes from Douglas Haret with Bernstein.

Good morning. Thank you. I wanted um Lorian Rahul I wanted to continue on the look at the current environment because when you look forward and see some of the challenges out there, you know, if we see jet fuel above $200 in in Asia in Europe, there are quite a few airlines that could be under some real financial pressure, and when you look at the steps you need to take over the next year or so, how do you compare the concerns around say an airline that simply is in difficult financial straits and can't do an overhaul versus simply reductions in flying hours that could take some dollars out of LTSAs? How do you think about these different sort of hazards out there over the next year perhaps?

Our next question comes from Scott Mikas with Millius Research.

Morning, Larry and Rahul. I figured there'd be a lot of questions about the conflict in the Middle East. So, I wanted to check in on the GE9X. Boeing flagged a fatigue issue with the engine. So, just curious if you could provide an update on that. Is there any change to the expectations you had for losses on the program this year?

Our next question comes from Miles Walton with Wolf Research.

Thanks. Good morning. I was switch gear a little bit on aerodynamics, off topic question, but you had a disclosure that had a restatement and moved aeroderivatives equipment from your CES segment to your DPT segment. And what caught my eye was you had about 94 deliveries of aeroderivatives last year to your customers, but the pricing on those looked fairly benign relative to the potential for what pricing could be given the backdrop for power. So can you talk about what the strategy is for aeroderivatives and what the upside opportunity could be for repricing and volume? Thanks.

Yeah. So Miles, you know, on aeroderivatives, as you know, we provide the engine, and then our partners in the JV take the product to market, they do the system integration, add some controls, there's work done by both parties. But I think what you saw in our disclosure is basically the fact that we are burning the pre-spin backlog, right? That was backlog that we had sold when we were part of one company that had certain different agreements. Post spin, the pricing to the JV has been revised substantially, and we're kind of working our way through the old backlog, and we should transition to the orders that we have won post spin in the next I would say 18 to 24 months. So you'll see gradual increase in pricing here over the next few months to quarters, right, so you'll see an improvement. But overall, listen, I think it's a great business, it is, we've sold out here through 2030s, so that is one leg of this tool. And then obviously everything that you're seeing with CFM56 getting added potentially to the power generation capacity gives another leg of growth towards the CFM56 platform, be it through swap path sales to third parties who are developing that product or some other form of collaboration. So I think we are exploring all those things, but overall the aeroderivatives business is in a really good spot of the market, both with the existing product that we have and potential new entrants to that market.

Our next question comes from John Goden with City.

Hey guys, thanks for taking my question. If I could just come back to CES margins specifically. There's a concern out there that if this fuel shock continues, retirement spike, and in particular your CES margins would be at risk. You've obviously been very thoughtful about your guidance, embedded a pretty conservative outlook for global aviation, and it doesn't seem like you think that risk is particularly likely. So, I'd love to just get your reaction to that, to the concern on margin risk, and what positive offset to this mixed effect might exist if global aviation continues to deteriorate.

So I think there are two parts to the question. For the current year, as you think about the margins, we've baked in kind of flattish margins here for the year. Now as you think about the growth for the year, the $4 billion of growth that we are now expecting, keep in mind the first quarter grew by about $2 billion, and then we are expecting high teens growth here in the second quarter, so that gets us closer to two-thirds, three-quarters of the growth will be in the first half of the year. So we feel good about the growth rates that we have for the year, and that should support the flat margin expectations that we have for the business. Now, again, what's happening in the year, as we've discussed previously, is that we're getting good support from our services growth, that's dropping through at a healthy clip, and in the first quarter service margins were actually up year-over-year, so that was a positive trend. Now we're not baking that in for the full year, full year we are expecting service margins to be flat, but it's a good start to the year, and that positive drop through from the services is getting offset by the OE growth that we saw in the first quarter. For the full year, we're expecting LEAP deliveries to be up 15%. And while both spare engines and install engines are going to be up for the year, the growth is primarily going to be driven by install engines here for the year. And then we have 9X shipments. So you put all that together, we expect kind of flattish margins for the year for CES. Now, as you go outside the year, John, we spoke about the LEAP margin trajectory earlier to Scott's question. We expect LEAP margins to approach overall CES levels of service profitability here in the next couple of years. 9X losses should also peak by the time we get to 2028, just given that we're driving a 50% reduction in 9X cost. So LEAP margins improving, 9X headwinds kind of peaking in 28. And as we look beyond that, that is when we expect both accelerated profit and margin expansion in the business.

Our next question comes from Gavin Parsons with UBS.

Good morning. Thanks guys. This is Joel Santos filling in for Gavin Parsons. Thanks for taking my question. Moving to defense, strong results in Q1, solid margins, stronger order environment. As we look through the rest of 26, how should we think about the sustainability of growth margins in the segment?

So for DPT again, you saw our revenue growth in the first quarter. We are expecting high teens revenue growth for the first quarter, and overall if you look at the results for the first quarter, they keep us at pace for what we've guided to the full year, both on year-over-year profit growth and the absolute dollars of profit that we delivered in the first quarter. Margins were a little bit light in the first quarter, largely because the equipment grew more than the aftermarket, but that mix, I think overall we're kind of on track as we think about the year. So we're going to drive strong output, productivity is going to get better, and the mix should also improve as we go through the year. So I feel, given the growth rates that we had in the first quarter, we feel good about the year. And as you took as you in prepared remarks, we do expect DPT to be at the higher end of the guidance that we previously committed, just given the growth rates that we are seeing in the first quarter and the drop through expected from that.

Our next question comes from Seth Syman with JP Morgan.

Hey, thanks very much and good morning. In the outlook where you talk about Brent prices remaining fairly elevated through Q3, I think, you know, in addition to Brent prices, we've seen significant increases in the spread for jet fuel. Are there special things we should be thinking about there, and reasons why from a jet fuel perspective that this could carry on longer and/or be more disruptive than simply what's happening with oil prices?

Liz, we have time for one more question. This question comes from Gazam Kana with TD Securities.

Hey, thank you. I had actually two questions. But the first one just on supply chain, you mentioned delinquencies and the like, but if you could just characterize how material improved sequentially and where, and maybe just an update you've given in the past on how many suppliers and you know where the pinch points are strongest. And then just secondly, was wondering on the company's aftermarket exposure to kind of low cost carriers or business models in the airline industry that might be more affected by the tough oil environment. Maybe if you could elaborate on that.

And Gazam, to your second question, I mean if I step back here and just look at the environment that we've seen, again we've spoken to the order trends here through the start of the conflict. There's nothing in the environment here that's giving us pause, right? The customers are eager to get back in the air. Yes, they're experiencing temporary disruptions just given everything that's going on directly in the Middle East, a little bit from lack of availability of fuel and prices, but everybody's super eager to get back and support the flying public. So that's what we are seeing right now. We spoke to the strength that we're expecting here in the second quarter, and as we think about the full year, had it not been for the environment that we're in, and I'm repeating something Larry said earlier, we would have raised our guidance because the first quarter was about $300 million better than what we had expected at the beginning of the year, and we are carrying that strength into the second quarter. The momentum is clearly carrying through, and we spoke to both sequential and year-over-year profit growth here in the second quarter with high teens services growth expected. So, and then the second half is just about what we don't know. I think that that is the question. So hopefully, as Larry said earlier, we being conservative and cautious, prudent, whatever words you want to use. I think again time will tell, but we feel good about the year as we sit here today, and we're not seeing any disruptive behavior on the part of the customers. We're not seeing risk that we didn't have maybe just a couple months back. So, but we're monitoring the situation very closely as you would expect us to, and we would give updates throughout the quarter as we learn more.

Larry, any final comments?

Thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating. You may now disconnect.