GE Sees Growth in Aerospace Profit Margins After Breakup

(Bloomberg) — General Electric Co. expects profit margins at its aviation division to continue to expand over the long term as an independent business, the company said Thursday.

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GE Aerospace, which today primarily makes and services jet engines, should also see revenue growth at a mid- to high-single-digit rate and generate free cash flow “in line with net income” over the same period, Chief Executive Officer Larry Culp said in a statement.

GE expects sales at its combined power-equipment and renewable energy units to grow at a mid-single-digit rate with high single-digit profit margins, despite intense near-term pressures at GE’s wind turbine business. The company also reaffirmed its 2023 financial targets, which call for a more than doubling of adjusted earnings and up to $4.2 billion in free cash flow.

“We are operating from a stronger foundation and as a fundamentally simpler business that is creating significant value today and going forward,” Culp said.

Wolfe Research analyst Nigel Coe, who has an “outperform” rating on the stock, called the aerospace targets “pretty impressive” in a research note. He also noted GE’s longer-term outlook for its energy units was above his base-case estimates.

GE rose 2.4% in premarket trading as of 9 a.m. in New York. The shares had soared 26% in the 12 months before Thursday, one of the larger gains among industrial companies and better than the slump in the S&P 500.

The gains have come as GE completed the spinoff of its health-care division in January, the first step in Culp’s plan to simplify the storied conglomerate by breaking it apart. The energy businesses will take the name GE Vernova following next year’s split.

The company also projected GE Aerospace revenue in 2025 would grow by as much as a mid-teens percentage range with profit margins expanding by roughly 20%.

The long-term targets reflect the company’s latest expectations beyond 2023 following Culp’s multi-year push to turn around GE’s manufacturing divisions.

Profit margins at GE Aerospace unit in particular have garnered attention as the company boosts jet engine deliveries to Boeing and Airbus. New turbines are loss-making early in their life before generating profits for several years through services.

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The outlook underscores the opportunity ahead as GE tries to capitalize on rebounding air travel while it nears a breakup in early 2024 that will leave aerospace as its primary remaining business.

In the meantime, the Boston-based company is working to rejuvenate its energy-related operations, which have faced acute pressure in the renewables market.

One key issue investors will be looking for Culp to address is the deep losses at the company’s wind turbine business, which is being restructured after it dragged the broader renewable energy division to a $2.2 billion operating loss last year.

–With assistance from Richard Clough.

(Updates with analyst comment in fifth paragraph, shares in sixth.)