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GE Aerospace (GE -9%) is descending today despite delivering another decent beat-and-raise in Q3. Demand remained robust in the quarter, supporting the aerospace engine manufacturer's adjusted revenue growth, which removes the impacts from GE Vernova (GEV), spun off in April, of +6%. However, this improvement fell short of analyst expectations. Furthermore, GE lowered a few of its FY24 growth targets, reflecting fallout from the Boeing (BA) strike and lingering supply chain constraints. With the stock hovering around all-time highs yesterday, GE was in no position to disappoint. As a result, shares are pulling back today.

• Another nitpick from Q3 was the slim earnings beat. Since GE spun off GEV, it registered double-digit beats. In Q3, it squeaked out mild bottom-line upside. Still, from a profitability standpoint, GE continued to fire on all cylinders, expanding operating margins by 150 bps yr/yr to 20.3%, ultimately pushing EPS 25% higher to $1.15 despite the tepid adjusted revenue growth.
• Demand is not an issue for GE. Total orders surged by 28% yr/yr, keeping pace with the past few quarters. A testament to its technological advantage, GE continued to seal wins in widebodies and narrowbodies, building on its considerable backlog of $149 bln. Over 90% of this backlog is in Services, which enjoyed a 10% bump in revs yr/yr.
• Supply has been a sticking point. GE registered a 4% drop in total engine shipments yr/yr, including a 6% drop in LEAP deliveries (powers several major aircraft, including the Airbus A320neo and Boeing 737 MAX). The second consecutive quarter of contracting shipments drove GE's lower-than-anticipated adjusted revenue growth.
• However, GE has progressed in this area, taking steps with its suppliers to increase inputs and expand capacity. This manifested in engine output rising 22% sequentially, including commercial up 25% and defense up 8%. GE also expects input to continue increasing in Q4, supported by a sequential step-up in output.
• Nevertheless, supply issues and lingering adverse impacts of the extended union strike at Boeing are expected to hinder performance in the immediate future. GE predicted sequential growth in LEAP engine deliveries but foresees FY24 deliveries to drop by around 10% yr/yr, significantly lower than GE's previous flat to +5% prediction. GE also lowered its internal shop visit growth for the year.
  • The silver lining was profitability; GE raised its FY24 EPS outlook to $4.20-4.35 from $3.95-4.20. Also, GE kept its adjusted revenue growth forecast of high single digits unchanged.

Demand for aerospace remains robust across the commercial, defense, and aftermarket sectors, highlighted by resilient order growth and a healthy backlog. However, supply-related woes are getting in the way, as are Boeing's problems. Furthermore, GE did not change its $1.0 bln in EBIT forecast for 2025 despite the company sitting at around $550 mln, placing sky-high expectations on improvements next year. Still, GE remains a firmly established player in the aerospace industry, putting it in a sound position to reignite growth. As such, pullbacks offer decent entry points for longer-term investors.