General Electric's (GE.US) Q3 Earnings Are Mixed, Supply Chain Crisis Remains

General Electric's (GE.US) aerospace division reported mixed third-quarter results on Tuesday, with adjusted sales of $8.9 billion, below the $9 billion expected by the market; and adjusted EPS of $1.15, slightly above the $1.13 expected by the market.

GE Aerospace raised its full-year guidance, indicating the jet engine manufacturer continues to benefit from strong orders and maintenance services.

GE Aerospace now expects adjusted EPS of up to $4.35 this year, up from its previous expectation of no more than $4.20. The company also raised its free cash flow guidance.

GE Aerospace is adapting to the volatility in the aviation industry, which is currently being hit by supply chain bottlenecks and production cuts by aircraft manufacturer Boeing (BA.US). Earlier this year, GE Aerospace officially announced its separation from General Electric after the company completed its spinoff in April.

Larry Culp, CEO of GE Aerospace, said the company is committed to increasing the production of aircraft engines without sacrificing safety or quality. He said in a statement: "While there is more work to be done, we have made meaningful progress, delivering more than 20% sequentially in engine deliveries, while also expanding our aftermarket capacity."

Commercial engines and services business continued to show stable performance. The company said orders in the last quarter grew 29% year-on-year, while the service business grew 10% driven by increased spare parts sales, passenger traffic, and price improvement.

The defense and propulsion business reported mixed results, with revenue up 2% and profits down 18% to $220 million, partly due to inflation.

Supply Chain Challenges

GE Aerospace recently faced supply chain challenges, partly due to small manufacturers struggling to find skilled workers who retired or quit during the pandemic. The company recently experienced a shortage of high-pressure turbine blades, which led to a shortage of its Leap engines delivered to Airbus.

GE Aerospace cut its Leap engine production growth to 5% in July, but the shortage may prompt customers to extend the life of its predecessor CFM56 engines, which would boost its maintenance business.

GE Aerospace will continue to exit certain assets and resolve legacy issues. The company completed the sale of its licensing business to Dolby Laboratories (DLB.US) for a pre-tax gain of $341 million. The company also reported a $328 million pre-tax expense related to a principle agreement to resolve legacy shareholder litigation.

As of the time of writing, GE Aerospace was trading down nearly 5% before the market opened. The stock has risen 92% year-to-date, outperforming the S&P 500 index.