Why GE Aerospace Stock Rebounded After Earnings Report

Investors took an optimistic perspective on the recent earnings report from GE Aerospace (GE 2.99%), resulting in a stock increase of over 4% by 11 a.m. ET on Wednesday. Following a drop in stock price after Tuesday's earnings announcement, many investors seized the opportunity to buy in while the price was lower. Let's explore the reasons behind this rebound.

Mixed Earnings Report from GE Aerospace

The earnings report revealed some challenges, particularly concerning the LEAP engines. This joint venture with Safran produces LEAP engines, which serve as the exclusive engine for the Boeing 737 MAX and are also an option for the Airbus A320 neo family.

Due to various supply chain issues and delays in airplane deliveries, GE Aerospace adjusted its expectations, predicting a 10% decline in LEAP engine deliveries for 2024 relative to 2023. Previously, the company had anticipated a 20%- 25% increase in these deliveries at the start of the year.

This delay in LEAP engine deliveries is concerning as it means that earnings and cash flows from aftermarket services will also be postponed, as the engines require servicing in the future.

The Positive Aspects of GE Aerospace's Report

Despite the disappointing news regarding LEAP deliveries, there were some encouraging highlights in the report concerning new orders. In the commercial engine sector, orders rose by 29%, while defense orders increased by 19% for the third quarter. Additionally, the delay in aircraft deliveries might lead to more usage of GE's older engines, resulting in potentially higher aftermarket revenue.

Management noted that engine shop visits for the older CFM56 model—used in the legacy Airbus A320 family and legacy Boeing 737—are expected to peak in 2025 and remain at that elevated level until 2027. This is a change from the earlier projection that anticipated a decline after 2025.

In this sense, the forecasted near-term earnings and cash flows may mitigate the impact of postponed earnings, providing a significant benefit that the market may have overlooked during the initial negative reaction on Tuesday.

Lee Samaha has no position in any of the stocks mentioned. The author has no position in any of the stocks mentioned.

GE, Aerospace, Earnings