General Electric had accumulated $36 billion in losses between 2017 and 2021. Heir to the mistakes of the past, eaten away by debased governance and bending completely under its own weight, the century-old conglomerate, on the verge of implosion, had become moribund.
It commanded a market capitalization of only $50 billion at the height of the pandemic, and barely $100 billion a year later, at the end of 2021, when Culp announced its separation into three distinct activities - aviation, energy and healthcare.
The sum of the three entities in question - GE Aerospace, GE Vernova and GE Healthcare Technologies - now exceeds $370 billion in market value, of which $211 billion resides in the first alone, always the jewel in the crown. So it's hardly surprising that Larry Culp, a Danaher defector well aware that a good jockey is nothing without a good mount, has chosen to preside over the company.
Over the past twelve months, GE Aerospace has reported orders up 32%, sales up 9%, and earnings per share - adjusted for restructuring costs and changes in the scope of consolidation - up 56% on 2023.
The rebound in air traffic - back to pre-pandemic levels - and delivery difficulties at Airbus and Boeing served the company very well: faced with these challenges, airlines opted to re-engine their existing fleets, hence the spike in new orders, all arriving at the same time.
Culp rightly describes the past year as "monumental". It is the civil aviation segment that is pulling the whole thing up, with sales up 13% and an abnormally high operating margin of 26.2%, well above its historical average or the performance of rivals such as Safran, Rolls-Royce or Pratt & Whitney.
The defense segment - which accounts for a quarter of consolidated sales - also had a good year, with sales up 6% and an operating margin of 11.2%. Consolidated free cash flow rose from $4.7 to $6.1 billion, largely returned to shareholders via share buy-backs.
GE is also announcing a 30% dividend increase and plans to spend $7 billion on share buybacks by 2025. Zonebourse, it has to be said, finds this commitment a little curious, since at a share price of $197 and with earnings per share expected to reach $5.25 next year, the valuation approaches thirty-eight times earnings.
Admittedly, GE enjoys a fantastic competitive position in the short-haul category. It used to operate in a virtual duopoly with Rolls-Royce, but the British company abandoned this field as part of its own restructuring plan; in addition, regulation and hyper-complex approval processes largely prevent the arrival of new entrants.
That said, the fact remains that GE's results in 2024 look exceptional by any measure. Extrapolating them over the long term - and justifying massive share buybacks at current valuation multiples - is therefore not without risks for shareholders. Even if, in the shorter term, they should support the share price and consecrate Larry Culp's maestria.
