GE Aerospace’s Earnings: A Surprising Market Response
The stock market’s reaction to GE Aerospace’s (NYSE: GE) recent earnings report is raising eyebrows. It’s unusual for a company to see a 9% drop on a day when it raises its full-year guidance for operating profit, earnings per share (EPS), and free cash flow (FCF). Here’s a closer look at the report and what it might mean for investors.
Highlights from GE Aerospace’s Earnings Report
Despite raising guidance, the stock saw heavy selling on the day of the report. Investors are focused on more than just the surface numbers, as two key issues in GE’s operations are causing unease.
Full-Year 2024 Guidance Metrics |
July |
Current |
---|---|---|
Adjusted revenue growth |
High single digits |
High single digits |
Operating profit |
$6.5 billion to $6.8 billion |
$6.7 billion to $6.9 billion |
Adjusted EPS |
$3.95-$4.20 |
$4.20-$4.35 |
Free cash flow |
$5.3 billion to $5.6 billion |
$5.6 billion to $5.8 billion |
Challenges with LEAP Deliveries
GE Aerospace consists of two segments: Commercial Engines & Services (CES) and Defense & Propulsion Technologies (DPT). The CES segment plays a crucial role, supplying engines for top-selling aircraft like the Boeing 737 MAX and the Airbus A320neo.
Although CES brought in strong operating profit, raising guidance from $6.6 billion to $6.8 billion, there are worries about supply chain disruptions affecting engine deliveries, particularly the CFM International LEAP engine that powers the Boeing 737 MAX.
The table below reflects a notable decrease in projected delivery growth related to ongoing supply challenges. Even though reduced deliveries might not hurt short-term earnings, they could adversely affect future aftermarket revenue on LEAP engines, where CES earns much of its profit.
GE Aerospace Full-Year Guidance |
At January |
At April |
At July |
Current |
---|---|---|---|---|
LEAP deliveries growth |
20%-25% |
10%-15% |
0%-5% |
Down 10% |
Insights on Defense & Propulsion Technologies
The CES segment forecasts an operating profit midpoint of $6.7 billion, while the DPT segment maintains its profit estimate between $1 billion and $1.3 billion, although management now expects to land at the lower end of that range. On the recent earnings call, CFO Rahul Ghai mentioned increased research and development spending for advanced programs, along with “some pressure” on propulsion and additive technologies.
This news may point to broader difficulties in the defense sector, where increasing complexity drives up costs while governments leverage their bargaining power.
Assessing the Market Reaction
The stock’s decline may be exaggerated if investors previously viewed it as a good value. While the news regarding defense technology is disappointing, it is not the primary profit driver for GE. Concerns about LEAP engine deliveries persist, but demand for commercial jets from Boeing and Airbus remains robust, with backlogs continuing to grow. Delays in LEAP engine deliveries have been acknowledged, yet management still anticipates growth in 2025.
Moreover, overshadowed by the negatives, CES saw a remarkable 29% increase in new orders this quarter, marking a 33% rise year-to-date. Overall, GE Aerospace’s orders increased by 26% year-to-date. The sell-off, when considering these factors, appears unwarranted.
Investment Considerations for GE Aerospace
Before making an investment decision regarding GE Aerospace, it’s important to evaluate your options carefully.
The Motley Fool Stock Advisor team recently highlighted what they believe are the 10 best stocks to consider now—GE Aerospace did not make the list. The selected companies could yield significant returns in the years ahead.
For instance, if you had invested $1,000 in Nvidia when it was on this list on April 15, 2005, your investment would be valued at approximately $867,372 now!*
Stock Advisor offers investors a straightforward strategy for portfolio building, including consistent updates from analysts and two new stock picks each month. The service has more than quadrupled the returns of the S&P 500 since 2002*.
See the 10 stocks »
*Stock Advisor returns as of October 21, 2024.
Lee Samaha has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are those of the author and do not necessarily reflect those of Nasdaq, Inc.