General Electric Co’s aerospace business reaffirmed its outlook for the current year. It forecast a $10 billion operating profit in 2028, setting it on an earnings power path as GE completes a long-planned breakup into separate companies in April. The company’s jet engine business is a cash cow that has benefitted from a recovery in air travel and a surge in defense orders.
Amid rising geopolitical tensions, demand for GE’s aerospace products is expected to remain strong through 2028. The business will grow adjusted revenue in the low double digits this year and next, with operating margins expected to reach the high teens by 2023, it said. The company is also focusing on productivity and cost reductions to boost its competitive edge.
The forecast, released ahead of GE’s Aerospace Investor Day later on Thursday, underscores the earnings potential of the once-troubled industrial conglomerate, split into a healthcare and energy business by Chief Executive Larry Culp last year. The split is the final step in Culp’s multiyear effort to pull GE out of a deep slump that saw the company slash its dividend and sell assets.
GE’s aviation unit is one of its most profitable and fastest-growing businesses, mainly due to the resumption of passenger flights following a pandemic-related hiatus. However, the company faces challenges as the Boeing 737 Max crisis forces airlines to fly older planes longer and cuts their order backlog. In addition, a rise in oil prices has weighed on the industry’s profitability.
Meanwhile, the company’s troubled power divisions face a more challenging path to profitability. GE’s renewable energy and power businesses lost about $500 million in combined operating income in the fourth quarter, and its latest forecast for the current year is below analysts’ estimates.
The company’s power business, GE Vernova, is set to lose $200 million or more at an operating level this year. Its gas and steam turbines struggle to keep pace with the global shift to cleaner, more environmentally friendly power sources.
GE’s power business is trying to recover from an accounting scandal in 2022 that wiped out nearly $6 billion in value. The scandal centered around a restructuring program called Project Titan, designed to lower the cost of capital for GE’s nuclear operations by taking more money out of the company’s books. GE has denied any wrongdoing, but the controversy shook investor confidence in the unit.
GE plans to return 70% to 75% of its available cash to shareholders via buybacks and dividends, including the recently announced $6.5 billion repurchase plan. The firm’s commitment to share returns is a positive sign for investors and could potentially bolster the stock’s attractiveness. However, the company’s current financial guidance is below the average of analysts’ estimates compiled by Bloomberg. That could be a reason shares fell 1.7% in premarket trading. GE’s stock has gained 140% since the end of 2021.
