GE Aerospace's stock flies toward a 16-year high after a big earnings beat

By Tomi Kilgore

Orders in commercial engines and services jumped 38%, and full-year outlook for profit was raised

Shares of GE Aerospace climbed toward a 16-year high Tuesday, after the jet engines maker reported second-quarter profit that was well above forecasts amid a big jump in orders, and lifted its full-year outlook.

The company lowered its outlook for adjusted revenue growth, as material supply issued continued to hurt new engine output, while guidance for free cash flow was raised.

The results were the first for GE Aerospace (GE) as an independent company, since the spinoff of the power business as GE Verona Inc. (GEV) took effect on April 2.

The stock surged 8.1% in afternoon trading, to put it on track for the highest close since April 10, 2008.

The company swung to net earnings of $1.27 billion, or $1.15 a share, from a loss on a standalone basis of $25 million, or 2 cents a share, in the same period a year ago.

Excluding nonrecurring items, adjusted earnings per share rose to $1.20 from 74 cents, to beat the FactSet consensus of 99 cents.

Free cash flow increased 16.6% to $1.1 billion, which topped expectations of $963.6 million.

Total revenue grew 3.9% to $9.09 billion, well above the FactSet consensus of $8.44 billion, as orders increased 18% to $11.2 billion.

In GE's commercial engines and services business, revenue increased 6.9% to $6.13 billion, as orders jumped 37.6% to $9.15 billion amid strong demand for spare parts.

Equipment revenue was down 11% due to lower shipments.

For defense and propulsion technologies, revenue was up 1.1% to $2.40 billion, while orders dropped 24.5% to $2.33 billion due primarily to the timing of orders in defense and systems. Engine deliveries sank 60%, due to supply chain challenges.

Chief Executive Larry Culp said on the post-earnings call with analysts that new engine output, which was down 20% from the first quarter, was "disappointing."

He said constrained material supply was hurting growth in new engines, with 80% of the shortages tied to nine suppliers across 15 sites.

Culp said that progress has been made in improving material flows, with higher engine output so far in July, relative to April, it has not yet been enough to meet demand.

"Overall, I am encouraged by our progress but by no means satisfied," Culp said, according to a FactSet transcript. "I'm confident that in the second half we'll increase engine deliveries significantly and continue to grow shop visits in support of our customers."

For 2024, the company now expected adjusted EPS of $3.95 to $4.20, up from previous guidance of $3.80 to $4.05. GE also raised its outlook for free cash flow to $5.3 billion to $5.6 billion from greater-than $5 billion.

However, the growth outlook for adjusted revenue was lowered to a high-single digit percentage range from low-double digits.

The stock has soared 72.8% year to date, enough to make it the S&P 500 index's fourth-best performer over that time frame. The S&P 500 has gained 16.7% this year.

-Tomi Kilgore

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07-23-24 1330ET

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