Prolec GE's Q3 2025: Contradictions Emerge on Capacity Expansion, Growth Strategies, and North American Opportunities

The above is the analysis of the conflicting points in this earnings call

Guidance:

• Reaffirming 2025 revenue trending to the higher end of the $36–$37B range.
• 2025 adjusted EBITDA margin expected 8%–9%.
• 2025 free cash flow expected $3.0–$3.5B.
• Power: organic revenue +6%–7%; EBITDA margin 14%–15%.
• Electrification: organic revenue ~25%; EBITDA margin 14%–15%.
• Wind: organic revenue down high-single-digits; wind EBITDA losses ~ $400M.
• Q4: expect EBITDA growth, margin expansion, and positive free cash flow.
• Tariffs: impact trending toward lower end of $300–$400M.
• Prolec GE: close by mid-2026; Prolec ~$3B revenue and ~25% EBITDA in 2025; $60–$120M annual cost synergies by 2028.

Business Commentary:

• Acquisition and Strategic Growth:
• GE Vernova announced the acquisition of the remaining 50% of Prolec GE for $5.275 billion, aligned with its strategic and financial objectives.
• The acquisition is expected to be immediately accretive and is consistent with their disciplined capital allocation strategy.

• GE Vernova aims to leverage Prolec GE's capabilities to strengthen its grid equipment market and expand its product offerings.

• Strong Orders and Backlog Expansion:

• GE Vernova reported orders of $14.6 billion, a 55% increase year-over-year, with a book-to-bill ratio of approximately 1.5.
• The company's backlog expanded to $135 billion, primarily driven by growth in power and electrification segments.

• The backlog expansion was supported by significant orders and framework agreements with key customers.

• Electrification Segment Growth:

• GE Vernova's electrification segment saw equipment orders more than double year-over-year, contributing to an equipment backlog of $54 billion.
• Revenue in the electrification segment grew 32%, with margins expanding to over 15%.

• Growth was attributed to strong demand for grid investment, particularly in North America, Europe, and the Middle East.

• Gas Power Demand and Capacity:

• Power segment orders grew 50%, driven by gas power equipment, with a significant increase in heavy-duty gas turbines.
• The gas turbine backlog grew from 29 to 33 gigawatts, with slot reservation agreements reaching 29 gigawatts.
• The strong demand and commitment to long-term growth led to plans for gas turbine capacity expansions to meet anticipated orders.

Sentiment Analysis:

Overall Tone: Positive

• Management called Q3 'another productive quarter,' highlighted backlog growth to $135B, said adjusted EBITDA more than tripled to $811M, reaffirmed 2025 guidance, and described the Prolec GE deal as immediately EBITDA-accretive with Prolec at ~$3B revenue and ~25% EBITDA—all signaling upbeat confidence.

Q&A:

• Question from Mark Strauss (JPMorgan): Maybe starting with the acquisition, can you just talk about on slide eight the visibility that you have into those 2028 targets? I appreciate it seems like you’re trying to be conservative, not baking in any revenue synergies, but just kind of given where the backlog is, can you talk about what gives you the confidence in putting that number out there for the out year? Thank you.
  Response: Confidence based on $4B explicit Prolec backlog today, framework agreements with utility customers, growing data-center demand (from ~10% to ~20% of Prolec volume), and recent capacity investments—numbers are conservative and must be earned via future orders.

• Question from Nigel Coe (Wolfe Research): Can you maybe just, Scott, it seems that you’re really excited about the potential in the low voltage, medium voltage, and perhaps some of the industrial verticals. Can you just maybe lay out where the mix is today and where you think that could be over time? Maybe talk about where capacity is today for Prolec GE and the investments that are required. That’d be really helpful. Thanks.
  Response: Prolec is weighted to higher-voltage power transformers but includes low/medium-voltage products; management expects peak CapEx in 2026 to support 2028 growth (approximately $300M of investments) and plans to target integrated industrial/data-center solutions rather than residential low-voltage.

• Question from Moses Sutton (BNP Paribas): On gas turbines, we’re starting to hear pricing for U.S. gas turbines are perhaps peaking and softening a bit. Really a two-part question here. A, has CCGT build truly surged to $2,500 a kW in the U.S.? It’s the type of number out there, with GE Vernova capturing 30% of that in the turbine sale typically. B, is that number softening a bit in new negotiations? If so, by how much? Thanks.
  Response: Affirmed that ~$2,500/kW is a practical market illustration and GE’s share is ~30%; overall prices are accelerating, but apparent softening in some metrics is mix-driven (more aero/simple-cycle bookings); slot reservations show higher prices/margins.

• Question from Julian Mitchell (Barclays): Maybe shed some light on that sort of price versus mix tailwind there for the dollars versus the gigawatts. Maybe it pertains to it somewhat, but aero derivatives are getting a lot more attention now. Strong demand growth, a lot of competition. Maybe help us understand your plans for capacity additions in aero derivatives vis-à-vis the demand outlook.
  Response: Dollar/gigawatt divergence is primarily mix (more aero and simple-cycle bookings this quarter); aero-derivative demand is robust and the company is investing and ramping factory capacity and productivity to meet that demand.

• Question from Amit Marotra (UBS): Is there any reason we can’t exceed kind of the peak of the last cycle just structurally, given all the pricing that you’ve been talking about? Just talk to us about the structural opportunity relative to previous cycle.
  Response: Management sees no structural barrier to meeting or exceeding prior peak margins given a much larger, more profitable services install base and higher-priced equipment orders, though they will not provide post-2028 numerical targets today.

• Question from Nicole de Blais (Deutsche Bank): On the cost synergy realization, any help on the cadence of realizing those savings? Like what can be done faster, what takes more time? You talked a lot about capacity expansion that you guys have done in Prolec GE and that remains a focus. What have you seen from the industry as a whole and what has that meant for pricing within the Prolec GE business? Thank you.
  Response: Cost synergies ($60–$120M annualized by 2028) will begin flowing soon after close (no single large step change); Prolec already runs ~25% EBITDA and has ~$300M of capacity investments—synergies are mainly design, sourcing, G&A and will phase in 2026–2028.

• Question from Joe Ricci (Goldman Sachs): Maybe you can double-click a little bit on the commercial limitations that currently exist under your agreement. As you kind of think about getting after that $80 billion addressable opportunity by 2030, just want to know like how you’re going to get after it, like the ability to really kind of accelerate the profitability of the business.
  Response: Full ownership removes North America exclusivity constraints, enabling GE Vernova to leverage global factory capacity, bundle switchgear/transformer solutions, control commercial/pricing strategy, improve customer experience, and pursue near-term North America upside while international medium/low-voltage expansion is a longer-term opportunity.

• Question from Andy Kaplowitz (Citigroup): Are there any situations where you’d actually begin to ramp capacity to get to higher than 20 gigawatts annually before you have that much backlog, especially given you’re already getting pretty close by the end of this year?
  Response: They won’t preemptively expand capacity today—will evaluate as backlog reaches ~80–100GW; expect peak gas and grid CapEx in 2026 to support a 20GW run-rate and anticipate modest incremental capacity from supply-chain productivity rather than early major expansion.

• Question from Chris D’Andrinos (RBC Capital Markets): Is that growth outlook capacity constrained? How does the growth outlook for Prolec GE compare to the growth opportunity for the rest of the electrification portfolio? Thanks.
  Response: Prolec is not capacity-constrained given ~$300M of capacity expansions underway; electrification core has been growing faster than Prolec and Prolec’s published growth excludes upside from revenue synergies the company expects to pursue after close.

• Question from Michael Blum (Wells Fargo): Can you speak to why most of the backlog increase or slot reservations as opposed to orders? Is that just a function of timing? Are there other dynamics going on there? Can you just level set us? Is 2026 to 2028 basically sold out and you’re more or less selling 2029 and beyond at this point? Thanks.
  Response: Slot reservations secure long‑lead equipment with non‑refundable deposits while customers finalize EPC, gas and permitting; management is conservatively keeping items as reservations until those boxes are checked, so reservations can grow faster than formal orders due to timing.

• Question from David Arcaro (Morgan Stanley): How do you think about modular power, this behind‑the‑meter power that we’re seeing, things like your aeroderivatives, but also smaller scale gas turbines, engines, even fuel cells. How do you see those? Is that a longer‑term competitive threat to the larger frame gas turbines? Do you see an opportunity to expand capacity and actually go after more volume in that side of the market?
  Response: Large heavy‑duty gas turbines remain the more economical long‑term choice for baseload; smaller/modular solutions will grow for near‑term needs and backup (replacing diesel gens), with aero‑derivatives serving as a near‑term bridge—not viewed as a structural threat to large frames.