GE Aerospace (GE, Financial) has reached all-time highs, bolstered by exceptional Q4 earnings and revenue that surpassed expectations. The company remains optimistic about its growth trajectory, projecting robust free cash flow for FY25. GE announced a $7 billion share repurchase plan, approximately 3% of its market cap, and a 30% dividend increase, yielding around 0.7% annually.
- Q4 EPS more than doubled year-over-year to $1.32, with revenue climbing 14% to $10.81 billion. Strong demand led to a 46% increase in total orders and a 450 basis point rise in operating margins to 20.1%, with each segment showing excellent growth.
- At Commercial Engines and Services (CES), orders surged 50% year-over-year, supported by increased equipment orders and ongoing services demand. GE's backlog reached $154 billion, with 90% in services.
- Shop visit revenues, making up 60% of services revenue, grew by double digits in Q4, aided by higher work scopes and pricing, despite a 3% volume decline due to material constraints. Spare parts revenue benefited from increased volume and pricing.
- Equipment revenue rose 38% as GE addressed supply chain issues, though total deliveries fell 2% in Q4. LEAP engine deliveries, crucial for Boeing's (BA, Financial) 737 MAX and Airbus' (EADSY, Financial) A320neo, decreased by 5%, aligning with expectations. Lower volume was offset by customer mix and pricing.
- Defense & Propulsion Technologies (DPT) saw a 22% rise in orders, with defense units nearly doubling sequentially. Propulsion & Additive Technologies grew 2% year-over-year, affected by lower commercial volume at Avio, yet offset by growth in other areas.
- GE anticipates FY25 EPS of $5.10-5.45, a 15% increase at the midpoint, and low double-digit revenue growth, building on FY24's double-digit rise. The company is working to resolve supply constraints, having already made significant improvements from 1H24 to 2H24 with a 26% increase in material inputs.
GE's Q4 performance highlights ongoing demand in the aerospace sector, including commercial, defense, and aftermarket segments. With a focus on resolving supply issues, investor attention is shifting towards LEAP engines. Services turned profitable in 2024, and LEAP OE (equipment) is expected to achieve profitability in 2026 after breaking even in 2025.
We previously noted that pullbacks provide good entry points for long-term investors. We remain positive on GE, but with the stock more than doubling over the past year, any setbacks in profitability targets could lead to significant selling pressure.
