The stock started 2024 as General Electric but is now GE Aerospace (NYSE:GE). The change of name reflects the spin-off of GE Vernova in early April. No matter which way you look at it, GE stock was up 24.6% in the first half, according to data provided by S&P Global Market Intelligence.
Why GE stock outperformed
The exceptional performance is due to two factors. First, the successful spin-off of GE Vernova helped dispel any fears over the matter. Second, GE Aerospace has excellent earnings momentum, and management has already raised its earnings guidance this year based on a better profit margin outlook.
GE Aerospace has two segments: commercial engines and services (CES) and defense propulsion technologies (DPT). As you can see below, the hike in full-year expectations is due to the CES segment. DPT's operating profit expectations remain at $1 billion to $1.3 billion.
The increase in CES expectations comes from strong higher-margin services growth (up 12%) in the first quarter. That's a major plus on the aftermarket side of the business. Moreover, on the original equipment manufacturer (OEM) side, management noted that a shift in the revenue mix from narrowbody-related sales to higher-margin widebody-related sales helped margins, too.
GE Aerospace Full-Year Guidance |
At January |
At April |
|---|---|---|
CES revenue growth |
mid- to high-teens |
mid- to high-teens |
LEAP delivery growth |
20%-25% |
10%-15% |
CES profit margin |
flat |
up 50 bps* |
CES profit |
$6 billion to $6.3 billion |
$6.1 billion to $6.4 billion |
Total Company |
$6 billion to $6.5 billion |
$6.2 billion to $6.6 billion |
Data source: GE Aerospace presentations.*100bps = 1%.
On a slightly more debatable point, readers will note that the aerospace company cut its estimate for LEAP engine (the engine powering the Airbus A320 family and Boeing 737 MAX) delivery growth to 10%-15% from 20%-25%. Given that the new airplane engines tend to be sold at a loss, the reduction in LEAP deliveries will actually help profitability overall.
Still, it's definitely not GE's aim for LEAP deliveries to be pushed out because it also pushes out the timing of when those engines start generating lucrative aftermarket revenue.
Image source: Getty Images.
GE Aerospace stock
All told, GE remains on track for an excellent year, and its long-term earnings and cash flow, notably from the airplane engine aftermarket, position it well for many years of growth ahead.
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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.
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