Why GE Aerospace Stock Saw a Recovery Today

On Wednesday, GE Aerospace's stock experienced a rise of over 4% by 11 a.m. ET. This increase came after a dip in the stock following the company's earnings report on Tuesday. Investors seemed to adopt a positive outlook regarding the recent earnings results.

GE Aerospace's Mixed Earnings Report

The earnings report from GE Aerospace had its share of drawbacks. One of the most notable was the downward adjustment in expectations for LEAP engines, which are produced through a joint venture with Safran. LEAP engines serve as the exclusive engine choice for the Boeing 737 MAX and are also an option for the Airbus A320 neo family of aircraft.

Challenges in supply and delays in aviation deliveries have led GE to expect a decline in LEAP engine shipments by 10% in 2024, compared to 2023. At the beginning of the year, management had anticipated a significant increase in LEAP deliveries ranging from 20% to 25%.

This reduction in LEAP engine deliveries is unfortunate as it delays not only earnings but also the cash flow that GE would typically earn from engine servicing in subsequent years.

Positive News Amidst the Challenges

Despite the setbacks with LEAP deliveries, the earnings report also included encouraging news. Orders were up by 29% in the commercial engine segment and 19% in the defense sector during the third quarter. Furthermore, the delays in aircraft deliveries may lead to increased running time for GE's older engines, creating additional revenue opportunities from aftermarket services.

As an example, the management indicated that shop visits for their older CFM56 engines, which are used in earlier models of the Airbus A320 and Boeing 737, are expected to peak in 2025 and remain at that high level until 2027. This is a revision from the previous expectation that these visits would decline after 2025.

Thus, the positive outlook for near-term earnings and cash flow resulting from increased service needs will likely help mitigate the anticipated delays in earnings and cash flow in the years to come. This beneficial aspect might have been overlooked by the market during the initial reaction to the earnings report.

Note: The author does not hold any shares in the mentioned companies, and the sources referenced do not own shares in any of the stocks discussed.

GE, Aerospace, Earnings