General Electric Company, doing business as GE Aerospace, designs and produces commercial and defense aircraft engines, integrated engine components, electric power, and mechanical aircraft systems. It also offers aftermarket services to support its products. The company operates in the United States, Europe, China, Asia, the Americas, the Middle East, and Africa.
General Electric (GE) delivered a mixed set of third-quarter results, with ongoing supply chain challenges impacting its ability to meet delivery targets, particularly in its aerospace division. GE Aerospace, now operating as an independent business following a recent corporate restructuring, posted adjusted revenue of $8.94 billion, slightly below the $9 billion expected by analysts. Despite the revenue shortfall, adjusted earnings per share (EPS) came in at $1.15, exceeding forecasts of $1.13, providing a modest boost to investor confidence.
The commercial engine segment continues to be a cornerstone for GE, with orders rising 29% year-on-year. Growth was supported by increased demand for spare parts, higher shop visits, and improved pricing in the services business. However, supply chain disruptions, particularly related to the production of Leap engines for Airbus, have remained a headwind. These delays are primarily driven by a shortage of high-pressure turbine blades and labour challenges faced by smaller suppliers. These factors are likely to persist into 2024, limiting the pace of new engine deliveries and potentially weighing on future margins.
In contrast, GE’s defense business faced more significant hurdles. While revenue in the division increased by 2%, profit margins shrank by 18% due to a combination of inflationary pressures and increased research and development spending. CEO Larry Culp acknowledged these challenges, stating that while the defense business may not grow as rapidly as the commercial side, GE Aerospace remains well-positioned in this market given its competitive edge and the current geopolitical environment.
Despite these operational headwinds, GE Aerospace has raised its full-year profit guidance, now expecting adjusted EPS in the range of $4.20 to $4.35, up from the previous outlook of $3.95 to $4.20. The company also increased its free cash flow forecast, anticipating between $5.6 billion and $5.8 billion for the year, up from the prior estimate of $5.3 billion to $5.6 billion. This revision is underpinned by improved margins and stronger-than-expected cash generation in the third quarter, where free cash flow reached $1.81 billion, ahead of the $1.27 billion estimate.
Looking ahead, GE Aerospace faces both opportunities and challenges. On the commercial side, the company is poised for continued growth as demand for engines and aftermarket services remains robust. However, supply chain constraints, particularly in the aerospace sector, may continue to weigh on performance in the near term. Meanwhile, the defense business, while slower to grow, holds promise given GE’s strategic positioning and long-term defence contracts, including a recently finalised deal with the Polish Ministry of National Defense for Boeing helicopters powered by GE’s T700 engines.
Overall GE Aerospace’s third-quarter results reflect a business navigating a complex environment. While its commercial engine business shows resilience, ongoing supply chain issues and defense-related challenges will require careful management, and understanding investors have reacted negatively to the news, which is amplified given the strength of the share price over the past year. Nevertheless, the company’s upward revision of profit and cash flow forecasts signals optimism for a solid year, as it continues to prove its ability to operate as an independent entity.
