The strong recovery in commercial air travel powered growth of more than 20% in General Electric Co.’s aerospace business in the fourth quarter and is expected to provide nearly as much momentum to the conglomerate in 2023.
Chairman and CEO Larry Culp called the growth in aerospace work an “unprecedented ramp” and said GE has been able to capitalize by refining its work to improve efficiencies and decentralizing some of its operations. Those initiatives, he said, will help 2023 operating profits grow to between $5.3 billion and $5.7 billion from about $4.8 billion last year even as product mix means margins will stay roughly flat.
Boston-based GE reported net income of $2.1 billion in the fourth quarter (when its recently spun-out healthcare business still was part of the company), which reversed a year-ago loss of more than $3 billion driven by more than $5 billion in charges related to the retirement of some debt. The company’s aerospace division produced adjusted Q4 profits of $1.4 billion versus $1.2 billion and its power group doubled its margins to more than 14% while the renewable energy unit’s losses widened to $435 million from the last three months of 2021.
Sales climbed 7% year over year to $21.8 billion, with aerospace clocking growth of 23% thanks to strong growth in services, an increase that more than offset a 13% fall in renewables revenues. Culp said the GE team is “making good progress” on its work to separate its aerospace and energy companies–the latter is scheduled to be spun off as GE Vernova early next year–and is forecasting revenue growth near 10% for 2023.
The aerospace outlook is positive, with a number of segments expected to grow almost 20% as the sector continues to emerge from the COVID pandemic. Research firm Cirium recently published a report forecast that demand for new aircraft will total 44,500 in the next 20 years.
There is, however, still a decent amount of noise in GE’s energy division. Work to improve the profitability of its grid services business is beginning to pay off, nearly 2,000 job cuts at its onshore wind division will start to generate savings this year and offshore wind losses are expected to grow even as revenue is set to double to about $1 billion.
“Orders and sales pricing continue to improve with our selectivity strategy yielding a more profitable backlog and pipeline,” Culp said of the Vernova group. “There is certainly more work to do and the next six months will remain challenging, but we are acting with urgency.”
Edward Jones analyst Jeff Windau noted that, after showing signs in recent quarters of stabilizing, the power division put up metrics that haven’t been seen in several years – even with its renewables group turning around slowly – and that helped drive the company’s overall bottom-line gains. Still, Windau said he isn’t ready to give two thumbs up to GE’s long-term prospects in this sector.
“We’re still cautious and look at this as more of a cyclical swing,” he said. “There are some headwinds in the economy so we’ll wait to call this until we have a few more quarters of good numbers.”
Shares of GE (Ticker: GE) were changing hands around $80 on the afternoon of Jan. 24, up slightly from the day before on above-average trading volume. Over the past six months, they have risen nearly 50%, growing the company’s market capitalization to more than $87 billion.
