GE boosts profit outlook amid surging demand for jet engines

General Electric Co. raised its forecast for profit and free cash flow for the year as rebounding demand for air travel drives growth in its increasingly critical aerospace business.

The maker of jet engines and power-generation equipment now expects 2023 adjusted earnings of $2.55 to $2.65 a share, up from a prior projection of no more than $2.30. That tops the $2.36 average of analysts’ estimates compiled by Bloomberg. Sales will grow at a low-teens percentage rate while free cash flow will rise to as much a $5.1 billion, both increases from the company’s prior forecast.

GE’s aviation operations “continues to experience rapid growth driven by robust demand and solid execution,” Chief Executive Officer Larry Culp said Tuesday on a conference call to discuss quarterly earnings. “We’re navigating a still-challenging supply-chain environment to deliver for and support our customers.”

The company’s shares rose 4% at 9:38 a.m. in New York. The stock surged 63% this year through Monday’s close, well ahead of the gain in the S&P 500 Index.

GE is “well positioned for continued healthy results,” Citi analyst Andrew Kaplowitz said in a note. He highlighted the “durable positive momentum” in the aerospace unit, while improvements in the renewable energy business mark “an encouraging sign of progress.”

The boosted outlook underscores the growing momentum of Culp’s five-year turnaround-turned-breakup of the iconic conglomerate. Since becoming CEO in 2018, Culp has sold huge businesses, slashed more than $100 billion in debt and overhauled factory operations to reshape the iconic corporation from a troubled giant to a smaller, more streamlined company. 

The last major step in Culp’s plan includes a spinoff of GE Vernova, its power-generation and renewable-energy units. GE said Tuesday that the spin is planned for the second quarter of 2024.

That will leave GE Aerospace, which primarily manufactures and services military and commercial jet engines, as a standalone business that the company expects will see higher sales and profits through 2025 as air travel continues to rebound after the pandemic.

Quarterly Beat

Adjusted earnings in the third quarter rose to 82 cents per share, GE said in a statement, well ahead of the 56-cent average of analyst estimates. GE Aerospace fueled the results with a 34% jump in orders and revenue that grew 25%.

“Overall, an exceptionally strong quarter for GE,” Deane Dray, an analyst with RBC Capital Markets, said in a note.

Supply chains continue to be a challenge despite an overall improvement in the flow of material to GE’s jet-engine factories, Chief Financial Officer Rahul Ghai said on the conference call. Those hangups will weigh on deliveries of Leap jet engines to Boeing Co. and Airbus SE, which GE now expects to rise 40% to 45% this year, a reduction from its earlier target of a 50% increase.

GE’s offshore wind unit, which recently installed the first turbines in a massive project near the UK, will lose about $1 billion on an operating basis this year and next. The unit’s initial backlog presents “a problematic financial profile” that the company must work through over the next few years, Culp said.

Sales overall at GE’s renewable energy unit rose by double digits with a 15% increase on higher deliveries of power-grid equipment and onshore wind turbines. The division’s operating loss narrowed to $317 million, better than the $934 million negative figure last year.

Both GE’s grid and onshore wind units were profitable in the quarter after a lengthy run of red ink at those units.

“Those two core proof points that we said were going to be key for the spin are in hand,” Culp said in an interview.