General Electric Company (GE) Q1 2023 Earnings Call Transcript

General Electric Company (NYSE:GE) Q1 2023 Earnings Call dated Apr. 25, 2023.

Corporate Participants:

Steve Winoker — Vice President – Investor Relations

H. Lawrence Culp — Chairman and Chief Executive Officer

Carolina Dybeck Happe — Senior Vice President and Chief Financial Officer

Analysts:

Robert Spingarn — Melius Research — Analyst

Nigel Coe — Wolfe Research — Analyst

Sheila Kahyaoglu — Jefferies — Analyst

Julian Mitchell — Barclays — Analyst

Seth Seifman — J.P. Morgan — Analyst

Andrew Kaplowitz — Citigroup — Analyst

Deane Dray — RBC Capital Markets — Analyst

Josh Pokrzywinski — Morgan Stanley — Analyst

Chris Snyder — UBS — Analyst

Joe Ritchie — Goldman Sachs — Analyst

Gautam Khanna — Cowen — Analyst

Presentation:

Operator

Good day, ladies and gentlemen, and welcome to 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. [Operator Instructions]

I would now like to turn the program over to your host for today’s conference, Steve Winoker, Vice President of Investor Relations. Please proceed.

Steve Winoker — Vice President – Investor Relations

Thanks, Liz. Welcome to GE’s first quarter 2023 earnings call. I’m joined by Chairman and CEO, Larry Culp; and CFO, Carolina Dybeck Happe.

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.

H. Lawrence Culp — Chairman and Chief Executive Officer

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 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 $0.27 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 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 AerCap 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 Uhl, 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. But 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.

Carolina Dybeck Happe — Senior Vice President and Chief Financial Officer

Thanks, Larry. Turning to Slide 3, 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 booked two large HVDC orders with TenneT and US 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 strengths in both equipment and services. Aerospace was a significant driver with substantial LEAP engine deliveries and shop visit growth. And we’re 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 $0.36 year-over-year. Free cash flow was $102 million positive. Importantly, it was up $1.3 billion year-over-year and half of 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. These achievements reflect our team’s intense focus in sealing disciplined processes to enhance linearity and eliminate waste. We’re 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 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 GAAP 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 gross 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 $0.10 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 billion to $4.2 billion.

And on that positive note, back to you, Larry, to discuss the businesses.

H. Lawrence Culp — Chairman and Chief Executive Officer

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 GEnx 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 in 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, we’ll 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 StandardAero 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, the third-party MROs license by CFM service about 70% of the CFM56 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 continue 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 US 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 effective — the most cost-effective option to meet the needs of the US 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 mix 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. 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, 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 uncertainty. 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 US equipment and we continue to drive pricing was 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 Haliade-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 24 from higher US volume, price and continued cost-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 Vernova. 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 HDGT units compared to last year. This included two incremental HA units, adding to our large gas installed base, which will serve us for years to come. Margins expanded despite a higher mix of 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 conversion.

In summary, I am encouraged by the progress we’re making across GE Vernova. With the secular tailwinds, the impact of lean in our investments in the portfolio, I see tremendous value-creation opportunity for years to come.

So to wrap-up on Slide 7, the GE team is off to an encouraging start in ’23 and our progress continues. Our missions at both GE Aerospace and GE Vernova 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 Vernova is 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. Steve?

Steve Winoker — Vice President – Investor Relations

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.

Questions and Answers:

Operator

[Operator Instructions] Our first question comes from Robert Spingarn with Melius Research.

Steve Winoker — Vice President – Investor Relations

Rob?

H. Lawrence Culp — Chairman and Chief Executive Officer

Rob?

Robert Spingarn — Melius Research — Analyst

Good morning. Good morning, Larry.

Carolina Dybeck Happe — Senior Vice President and Chief Financial Officer

Good morning.

H. Lawrence Culp — Chairman and Chief Executive Officer

Good morning.

Robert Spingarn — Melius Research — Analyst

As you might expect, I’m going to start with an Aerospace question, if that’s okay. I want to ask, [Speech Overlap] 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?

H. Lawrence Culp — Chairman and Chief Executive Officer

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 Mohamad shared with you, there are a whole host of things that we have learned along the CFM56 security 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 StandardAero and ST Engineering coming onboard. That’s another step in the right direction to set this business up to have a similar profile over time.

Robert Spingarn — Melius Research — Analyst

Would you — Larry, would you say, when you think about productivity versus volume versus initiatives of pricing, etc, when we think about that margin expansion, how would you bucket those?

H. Lawrence Culp — Chairman and Chief Executive Officer

Well, I — Rob, I think they all matter, right. Again, we’re in the midst of an incredible ramp. There are whole host of things that will benefit us from that volume. That said, that is we improve performance as we were 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 the above.

Operator

Our next question comes from Nigel Coe with Wolfe Research.

Nigel Coe — Wolfe Research — Analyst

Thanks. Good morning, everyone.

Steve Winoker — Vice President – Investor Relations

Good morning, Nigel.

Carolina Dybeck Happe — Senior Vice President and Chief Financial Officer

Good morning, Nigel.

Nigel Coe — Wolfe Research — Analyst

Yeah, it’s definitely a simpler company at the show. So, I thought the narrowing in the losses from 4Q to 1Q Renewables was very encouraging on the lower sales and volumes. It just seems that you suggest there is a underlying improvement in the cost base etc and the backlog quality. Maybe just talk about, number one, is that correct? And secondly, as we go into second quarter, can we expect to see another narrowing of losses Q-over-Q? And then maybe just touch on the orders trends. I think there’s about $5 billion of orders. I know there is a large HVDC order in that, but maybe just talk about what you’re seeing in Onshore and whether you’ve got better visibility on that Onshore ramp in the second half of the year?

H. Lawrence Culp — Chairman and Chief Executive Officer

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?

Carolina Dybeck Happe — Senior Vice President and Chief Financial Officer

Yeah. So therefore, the second quarter we are expecting similar losses to the first quarter. And Larry touched on — 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.

Operator

Our next question comes from the line of Sheila Kahyaoglu with Jefferies.

Sheila Kahyaoglu — Jefferies — Analyst

Good morning, everyone. Thank you.

H. Lawrence Culp — Chairman and Chief Executive Officer

Good morning, Sheila.

Carolina Dybeck Happe — Senior Vice President and Chief Financial Officer

Good morning.

Sheila Kahyaoglu — Jefferies — Analyst

Thanks. On Q1, it seems like a strong start to Aerospace margins with 19% versus the implied guidance of 18% margins, and that was despite LEAP up 53% year-over-year. Any detail on where exactly you saw net price and productivity come through the most? And you mentioned this in the script, Larry, but any ongoing reliability issues and how much did that impact profitability?

H. Lawrence Culp — Chairman and Chief Executive Officer

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 million to $5.7 million, 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 mix pressure as we thought we would see in the first quarter.

The strength in services certainly help, but that mix 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 is ’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 GE Aerospace.

Operator

Our next question comes from Julian Mitchell with Barclays.

Julian Mitchell — Barclays — Analyst

Hi. Good morning. Maybe just my question would be around free cash flow. Should we expect sort of second quarter to be around breakeven-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 thought 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 $3 billion to $4 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.

Carolina Dybeck Happe — Senior Vice President and Chief Financial Officer

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 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 $0.40 to $0.50 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 mix pressure that I was mentioning from the big ramps in LEAP and Haliade-X.

So if you look at it 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 Aeroderivative shipments.

And that brings me then to the free cash flow. So, we expect free cash flow to be around breakeven, 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 $1 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 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 $0.5 billion for the full-year. So basically shifting to the right.

When it comes to Wind, you asked about the $3 billion to $4 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.

H. Lawrence Culp — Chairman and Chief Executive Officer

Julian, I would just add that with respect to the orders in Wind in North America, I think, we feel as optimistic as we did back in March. We are in frequent contact with the administration, they are 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.

Operator

Our next question comes from Seth Seifman with J.P. Morgan.

Seth Seifman — J.P. Morgan — Analyst

Thanks very much. Good morning.

Carolina Dybeck Happe — Senior Vice President and Chief Financial Officer

Good morning, Seth.

H. Lawrence Culp — Chairman and Chief Executive Officer

Good morning, Seth.

Seth Seifman — J.P. Morgan — Analyst

So, 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 counts have been running in kind of the 3.5 to 3.7 range for 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 how are you thinking about where — what the upside might be to that aftermarket forecast?

H. Lawrence Culp — Chairman and Chief Executive Officer

Well, I think, you’re right, Seth, in terms of just the strength in the momentum that we see here right in 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 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 earning 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, were 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 and cash flows that we’ve talked about already, but net-net, we feel very good about the prospects.

Just on the margin, again, very pleased with the first quarter performance, but we do know 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.

Operator

Our next question comes from Andrew Kaplowitz with Citigroup.

Andrew Kaplowitz — Citigroup — Analyst

Hello. Can you guys hear me?

Carolina Dybeck Happe — Senior Vice President and Chief Financial Officer

Hi, Andy.

Andrew Kaplowitz — Citigroup — Analyst

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 Vernova separation in early-’24? Obviously you saw a strong growth in Onshore orders. How much does better US Onshore utilization help you as you move forward? And you mentioned similar profitability in Q2 Renewables versus Q1. What’s your line of sight 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-out program you have at this point.

H. Lawrence Culp — Chairman and Chief Executive Officer

Well, Andy, I think you’ve really outlined the answer to your question in many ways, right. We know it won’t be about the balance sheet. We know it won’t be the internal preparation that will pace when we spin GE Vernova, it will really be a function of business performance. And again, I think we’re really encouraged by what we see in 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 to 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. Though 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 in Offshore to position Vernova to go in ’24.

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 Vernova will be a standalone independent investment-grade industry leader in the energy transition sometime early next year.

Operator

Our next question comes from Deane Dray with RBC Capital Markets.

Deane Dray — RBC Capital Markets — Analyst

Thank you. Good morning, everyone.

Steve Winoker — Vice President – Investor Relations

Good morning, Deane.

Carolina Dybeck Happe — Senior Vice President and Chief Financial Officer

Good morning, Deane.

H. Lawrence Culp — Chairman and Chief Executive Officer

Hey, Deane.

Deane Dray — RBC Capital Markets — Analyst

Hey, 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 disciplined underwriting and so forth. Thank you.

H. Lawrence Culp — Chairman and Chief Executive Officer

Deane, 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 US 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 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 the two of those combined that you’re beginning to see help the margin profile in Onshore Wind and 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. That’s — I hope that gives you a full answer, but that’s how we’re going about this day-in, day-out opportunity-by-opportunity.

Carolina Dybeck Happe — Senior Vice President and Chief Financial Officer

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 stricter strike zone for that.

Operator

Our next question comes from Josh Pokrzywinski with Morgan Stanley.

Josh Pokrzywinski — Morgan Stanley — Analyst

Hi. Good morning.

Steve Winoker — Vice President – Investor Relations

Good morning.

Carolina Dybeck Happe — Senior Vice President and Chief Financial Officer

Hi, Josh.

H. Lawrence Culp — Chairman and Chief Executive Officer

Good morning, Josh.

Josh Pokrzywinski — Morgan Stanley — Analyst

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, seems like a healthy gap in there. I would imagine most of that is price, maybe some mix as well. At the same time, I guess we’re not fully clarified from the IRS on some of this rule-making language. Is price today sort of at the run rate you would expect or are there other dynamics that maybe emerged here with more clarity about sources of production and domicile and some of those elements?

H. Lawrence Culp — Chairman and Chief Executive Officer

Well, I think that we will continue to see this market evolves. Again, 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 Deane 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 continued improvement, I wouldn’t say that we’re somehow at a peak, we’ll continue to make sure we push our cost structure 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.

Carolina Dybeck Happe — Senior Vice President and Chief Financial Officer

Yeah. And if you think about it, we’re talking about sort of tech selects and orders, it will take about a year before you see it in the P&L So, 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.

Operator

Our next question comes from Chris Snyder with UBS.

Chris Snyder — UBS — Analyst

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-teens by my math for the rest of the year. And I certainly appreciate the comps get tougher, but I was hoping, I mean, you could provide some color on how we should expect the cadence of that organic growth deceleration over the rest of the year. And then 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.

H. Lawrence Culp — Chairman and Chief Executive Officer

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, right. 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 past-due backlogs either. So, I wouldn’t want to commit to that upside, but certainly we’re working to — 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.

Steve Winoker — Vice President – Investor Relations

Yeah. And I would just add, Chris, just to your specific cadence number, 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.

Operator

Our next question comes from Joe Ritchie with Goldman Sachs.

Joe Ritchie — Goldman Sachs — Analyst

Thanks. Good morning, everyone.

Steve Winoker — Vice President – Investor Relations

Good morning, Joe.

Carolina Dybeck Happe — Senior Vice President and Chief Financial Officer

Hi, Joe.

H. Lawrence Culp — Chairman and Chief Executive Officer

Good morning, Joe.

Joe Ritchie — Goldman Sachs — Analyst

So, just going back to Renewables for a second. 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, just given the bookings so far this year, I’m curious like what’s the expectation for Onshore Wind profitability exiting the year? Can you turn a profit in Onshore Wind exiting 2023? Thank you.

Carolina Dybeck Happe — Senior Vice President and Chief Financial Officer

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 tripling of Onshore Wind orders compared to last year, and that’s mainly both America equipment up. So basically IRA-driven and we saw good progress coming through from that. So the IRA is the game-changer; we said it would be, and we’re starting to see it come through. So if you combine them, the growth on the top-line, as well as the self-help actions that Larry mentioned, 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 the profitability or in this case, 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.

Steve Winoker — Vice President – Investor Relations

Joe, thanks. Liz, we have time for — let’s make time for one last question. Thanks.

Operator

Our next question comes from the line of Gautam Khanna with Cowen.

Gautam Khanna — Cowen — Analyst

Yeah. Good morning, guys. I was wondering if you could elaborate on —

H. Lawrence Culp — Chairman and Chief Executive Officer

Good morning.

Gautam Khanna — Cowen — Analyst

Yeah. Thanks. I was wondering if you could elaborate on supply chain in Aerospace. What the pacing items still are and if you have any metrics around pace of improvement we’ve seen in Q1 versus maybe Q4 or late last year anyway — second half of last year?

H. Lawrence Culp — Chairman and Chief Executive Officer

Well, yeah, 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 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 is 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, right. 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 operation, 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 are having that impact.

But it’s still challenging. I don’t want 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, in early-April, but that said, there’s a lot around that daily management intensity and discipline that we have seen in LEAP that we need to make sure as part of our defense business and those core facilities through the rest of this year to deliver on that high-single digit number.

Steve Winoker — Vice President – Investor Relations

Great. Larry, any final comments?

H. Lawrence Culp — Chairman and Chief Executive Officer

Steve, that went 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. Thank you. [Operator Closing Remarks]