GE Sees Wider Aerospace Profit Margins Ahead After Breakup

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(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. 

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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.

Read more: Airlines Struggle to Find Engines as Travel Comes Roaring Back

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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.

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.

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

The shares have soared about 32% this year, one of the largest gains among industrial companies and far more than the S&P 500 Index’s increase. 

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.

Investors will be looking for updates on that process and more details about expectations this year when Culp and other GE leaders discuss the outlook later Thursday morning. A key issue will be the actions GE is taking to stanch the deep losses at its wind turbine business, which is being restructured after it dragged the broader renewable energy division to a $2.2 billion operating loss last year. 

GE has also been grappling with broad supply-chain logjams that have weighed on deliveries of jet engines to Boeing Co. and Airbus SE.

—With assistance from Richard Clough.