GE Aerospace (GE, Financial) experienced a decline today even after reporting a solid Q3 performance. The company achieved a 6% growth in adjusted revenue, excluding impacts from the April spin-off of GE Vernova (GEV, Financial). However, this fell short of analyst expectations. Additionally, GE lowered some FY24 growth targets due to the Boeing (BA, Financial) strike and ongoing supply chain issues, leading to a pullback in shares.
- GE's Q3 earnings beat was modest compared to previous quarters, but operating margins expanded by 150 bps year-over-year to 20.3%, raising EPS by 25% to $1.15 despite slow adjusted revenue growth.
- Demand remains strong, with total orders up 28% year-over-year. GE continues to secure contracts in widebody and narrowbody aircraft, maintaining a $149 billion backlog, with over 90% in Services, which saw a 10% revenue increase year-over-year.
- Supply issues persist, with a 4% year-over-year drop in total engine shipments, including a 6% decline in LEAP deliveries. This contributed to lower-than-expected revenue growth.
- GE is addressing supply challenges by working with suppliers to boost inputs and capacity, resulting in a 22% sequential increase in engine output, including a 25% rise in commercial and 8% in defense.
- Despite improvements, supply issues and the Boeing strike are expected to impact short-term performance. GE forecasts a 10% year-over-year drop in FY24 LEAP engine deliveries, revising its previous flat to +5% prediction. Internal shop visit growth forecasts have also been lowered.
- On a positive note, GE raised its FY24 EPS outlook to $4.20-4.35 from $3.95-4.20, maintaining its high single-digit adjusted revenue growth forecast.
While demand in commercial, defense, and aftermarket sectors remains strong, supply challenges and Boeing's issues are hurdles. GE's unchanged $1.0 billion EBIT forecast for 2025 sets high expectations for future improvements. Despite current challenges, GE remains a strong player in aerospace, offering potential opportunities for long-term investors during pullbacks.
