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| GE raises 2023 profit forecast yet again on aviation boom |
General Electric (GE) Bolsters 2023 Profit Forecast Amid Aviation Resurgence
Oct 24 (Reuters) - General Electric (GE.N) continues its ascent in the financial realm, elevating its full-year profit forecast for the third time in 2023. This remarkable surge comes on the heels of quarterly earnings that exceeded Wall Street's expectations, primarily fueled by robust demand for jet engine components and services, as well as a notable upturn in its renewable energy segment.
GE shares took flight, surging by approximately 5.6% to reach $112.72 during the morning trading session.
GE's aviation division, traditionally its cash cow, is experiencing a renaissance due to the surging demand for aftermarket services. This resurgence is a direct result of the strong rebound in air travel, prompting airlines to prolong the use of their jets, a countermeasure against the backdrop of a shortage of commercial planes.
However, despite these favorable conditions, the aviation sector grapples with supply-chain obstacles. The company revealed that a wave of supplier delinquencies is affecting jet engine output, resulting in the postponement of LEAP engine deliveries into 2024 and 2025.
GE's CEO, Larry Culp, emphasized the need for a collective effort to address this issue: "As we ramp, as the air framers ramp, all of us have to do more week to week, month to month sequentially. And if we don't, that delinquency calculation will increase."
LEAP engines, which GE manufactures through a partnership with France's Safran (SAF.PA), power the narrowbody aircraft of industry giants Boeing Co (BA.N) and Airbus (AIR.PA). The company now projects a 40% to 45% increase in engine deliveries this year compared to 2022, a slight reduction from the earlier estimate of a 50% increase.
Culp set the company's sights on achieving a 20% to 25% year-on-year increase in LEAP engine deliveries in 2024.
In Q3, GE's aerospace unit demonstrated remarkable performance, with double-digit growth in orders, revenue, and profit compared to the previous year. Additionally, the unit's margin expanded by 130 basis points from a year ago.
This success stands in stark contrast to rival RTX (RTX.N), which reported a nearly billion-dollar quarterly loss due to a significant quality crisis at its subsidiary Pratt and Whitney, adversely affecting the popular Geared Turbofan (GTF) engines.
The financial gains at GE's grid and onshore wind businesses in the quarter have contributed to narrowing losses at its renewable energy unit.
Culp expressed his confidence that these businesses would continue to improve, but anticipated that offshore wind would report losses of approximately $1 billion this year, with similar losses expected in the following year. The renewable business has been challenged by a combination of weak demand and rising raw material and labor costs.
Notably, GE has successfully separated its healthcare unit and announced plans to spin off its aerospace and energy businesses, including renewables, into independent companies in the early stages of the second quarter next year. These independent entities will be listed on the New York Stock Exchange.
GE also disclosed that it generated $2.7 billion from the sale of a portion of its shares in AerCap Holdings NV (AER.N) in the third quarter. It expects to fully monetize its remaining approximately 14.5% stake in the aircraft leasing giant in an "orderly manner over time."
The Boston-based conglomerate now anticipates a 2023 adjusted profit per share in the range of $2.55 to $2.65, a significant improvement from the earlier forecast of $2.10 to $2.30.
Additionally, the company projects that free cash flow for the year will fall within the range of $4.7 billion to $5.1 billion, up from the previously estimated $4.1 billion to $4.6 billion in July.
In Q3, GE's adjusted profit reached an impressive 82 cents per share, surpassing the average analyst expectation of 56 cents per share, as per LSEG data.
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