General Electric
Ge Aviation 1

Aviation Strength Lifts GE Earnings, Stock

July 26, 2022
But the conglomerate’s renewable energy business continues to struggle.

A strong performance from General Electric’s aerospace business powered the conglomerate’s second-quarter results past analysts’ expectations and helped its stock climb 5%.

Boston-based GE posted a net loss of $857 million on revenues of more than $18.6 billion. Adjusted for various one-time items, including about $200 million in spending on the company’s planned split into three, profits rose 81% year over year to nearly $1.7 billion. Thanks to “continued robust customer demand,” the company’s aerospace orders climbed 26% and the group produced a segment profit of more than $1.1 billion versus $176 million in the same period of 2021. That more than offset a 19% segment profit drop in the healthcare division and a $419 million segment loss from renewable energy work.

The aviation business benefited from both equipment and services growth, with the latter helping raise margins to 18.7% from around 16% in the first quarter and less than 5% in the spring of 2021. On a conference call with analysts and investors, Chairman and CEO Larry Culp said the sector is going through “an unprecedented ramp” that is being accompanied by labor and material shortages.

In response, GE is devoting more resources to its supply chain, production and logistics functions. The demand, he said, looks to be strong for a while longer and will raise margins but GE and its suppliers will need to be “very much on our toes” to build the needed capacity.

“Given the way we've talked about 2023 in the past and the underlying improvement drivers, I don't think they've really changed since March relative to the strong tailwind that we see in aerospace broadly, both in services and in new units,” Culp said.

With GE’s renewables group, Culp said his team still has its work cut out for it. The second-quarter loss had been expected but Culp and CFO Carolina Dybeck Happe had said in April that they were forecasting a solid improvement in the second half of this year. That will now not happen, Culp said July 26, in part because gridlock in Washington, D.C., over onshore wind production tax credits “is hitting our most profitable market.”

GE’s leaders are looking to improve the prospects of their renewables business by turning to a set of actions that have helped turned out their power business in recent years. That will include focusing more narrowly on certain market segments, decentralizing its operations and trimming costs via job cuts and other measures.

“We know from our power experience that these actions at renewables won't yield results immediately,” Culp said. “But with this playbook, we expect the business to return to profitable growth over time.”

Shares of GE (Ticker: GE) were up nearly 5% to about $71.50 on the afternoon of July 26. Year to date, they have lost about 25% of their value, shrinking the company’s market capitalization to about $80 billion.

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