General Electric stock soars on aviation business forecast

General Electric forecast revenue at its cash-cow aviation business to grow by at least low-double digits through 2025, sending its shares to levels not seen since 2018 on Thursday.

The shares rose 6.5% after Chief Executive Larry Culp said at the company’s annual day for investors that a recession was “the last thing on our mind.”

The Boston-based conglomerate’s shares have benefited from strong aerospace demand and the recent spinoff of its healthcare business, even as its renewable energy unit has struggled.

GE stuck to its profit expectations for 2023 despite the dim economic outlook and persistent supply shortages. It expects adjusted earnings per share of $1.60 to $2, with revenue growth in the high single digits.

“We’re well positioned to have a strong year,” Culp said.

Through 2025, GE expects profit margins at GE Aerospace to be about 20%, company executives told investors at a conference in Ohio.

A jump in air travel has driven up sales at its aerospace division, which makes and services engines for Boeing and Airbus jets.

“The bottom line is that management are putting out pretty impressive targets for Aero through 2025, with the long-term framework for Vernova also above our base case,” Wolfe Research analyst Nigel Coe said, referring to GE energy businesses.

Culp said while GE is not recession-proof, it is enjoying “incredible” order backlog and demand.

The company expects the aerospace business to generate double-digit revenue growth this year, translating into an operating profit of $5.3 billion-$5.7 billion.

GE also said it is possible that lucrative repair revenues from the CFM56 engine that powered the previous generation of Boeing and Airbus narrow-body jets would continue for years to come. Planemakers have struggled to raise production, so jets are being retired later than anticipated.

Supply and labor shortages have hurt jet engine output, with CEO Culp saying it was a daily battle to meet jet engine demand.

Nearly half of the industry’s most popular jet engines have not seen the first shop visit, GE said.

GE said it was aligned with Boeing and Airbus on demand for LEAP jet engines through 2024, adding that 2025 supplies were being discussed as part of a standard process.

Engines supplied by CFM International, GE’s joint venture with France’s Safran, power Boeing’s 737 MAX jets and about half of Airbus’ A320/321neo family.

The comments imply a commitment to support Airbus plans to lift narrow-body output to 65 jets a month from 45, but leave question marks over the planemaker’s further push to take it to 75 a month. Airbus last month said it could reach production of 65 a month by the end of 2024 and plans to hit 75 a month in 2026.

Airbus has said it is confident that demand for jets would support the higher production rate but has given itself another year to get there, compared with earlier proposals, due to supply chain pressures.

GE Vernova, the company’s portfolio of energy businesses, including renewables, is expected to report an operating loss of between $200 million and $600 million in 2023.

The troubled renewable business is expected to be profitable in 2024, GE said. However, the unit has failed to turn a profit in the past eight quarters due to weak demand, higher raw materials and labor costs as well as supply-chain pressures.

These troubles have cast a shadow over GE’s spin-off timeline for Vernova, but Culp said energy businesses are “preparing to stand on their own sometime in early 2024.”