GE posts higher profits on recovery in aviation industry

The logo of U.S. conglomerate General Electric is pictured at the site of its energy branch in Belfort, France, February 5, 2019. REUTERS/Vincent Kessler/

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CHICAGO, July 26 (Reuters) – General Electric Co (GE.N) surprised Wall Street on Tuesday with higher quarterly profit and positive cash flow as the recovery in the aviation industry propelled its jet engine business , pushing up its shares.

The Boston-based industrial conglomerate, however, said it was still grappling with supply chain disruptions and inflationary pressures, which would put pressure on earnings this year as well as next.

“It’s a tough operating environment,” chief executive Larry Culp told Reuters in an interview.

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Supply chain bottlenecks have made it harder for the company to deliver products to customers on time. As a workaround, it holds higher inventory levels.

GE said supply chain and macroeconomic pressures reduced its revenue by 5 percentage points in the quarter through June.

It reiterated that its full-year results this year were on track to hit the bottom of its guidance, but cut the full-year free cash flow forecast by about $1 billion.

In January, it forecast adjusted earnings in 2022 to be between $2.80 and $3.50 per share and expected to generate $5.5 billion to $6.5 billion in free cash flow.

Culp said a “more conservative view” of part of society was warranted due to economic and political uncertainties.

Shares of the company rose 5.12% to $71.86 in morning trading.

While GE has yet to release a profit forecast for next year, Culp said earnings and free cash flow in 2023 are now expected to be lower than its previous estimate.

Meanwhile, a strong recovery in air travel has boosted demand in its engine business, which is the company’s cash cow. The unit saw a 27% year-over-year increase in revenue in the second quarter thanks to increased store visits and parts sales.

GE expects demand from its aviation unit to remain strong, resulting in revenue growth of more than 20% and operating profit of $3.8 billion to $4.3 billion this year.

Raytheon Technologies Corp (RTX.N), whose Pratt & Whitney segment manufactures jet engines, also reported increased demand for its engines and aftermarket services. Read more

Profits for GE’s healthcare unit, however, are expected to suffer this year due to supply chain disruptions and inflation in freight and raw materials.

Those issues, along with the expiration of a U.S. wind power generation tax credit, have weighed on the company’s renewable energy business. As a result, GE said it no longer expects business to improve in the second half.

Adjusted earnings for the quarter through June came in at 78 cents per share, above analysts’ expectations. Quarterly revenue of $18.6 billion also beat Wall Street estimates.

The company reported $162 million in free cash flow in the second quarter.

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Reporting by Rajesh Kumar Singh in Chicago and Abhijith Ganapavaram in Bengaluru; Editing by Kirsten Donovan, Bernadette Baum and Nick Zieminski

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