GE Aerospace Earnings Crushed Expectations. Why the Stock Dropped.

GE’s experimental Rise turbine engine could be discussed when the company presents its long-term outlook for commercial aerospace on Thursday. (Qilai Shen/Bloomberg)

GE Aerospace reported better-than-expected second-quarter earnings. The business is humming, and the outlook is improving. Still, the stock fell. Investors can blame lofty investor expectations.

GE Aerospace on Thursday reported second-quarter operating profit of $2.3 billion and earnings per share of $1.66 on sales of $10.2 billion. Wall Street was looking for operating profit of $2.1 billion and earnings per share of $1.43 on sales of $9.6 billion, according to FactSet. A year ago, for the second quarter of 2024, GE Aerospace reported operating profit of $1.9 billion and earnings per share of $1.20 on sales of $8.2 billion.

Aftermarket parts and service remain strong, and orders rose 20% year over year. “Blow-out performance,” wrote Vertical Research Partners analyst Rob Stallard. “We think investors had been expecting a strong 2Q performance and guidance raise from GE, but this is likely to have topped even optimistic expectations.”

Shares closed at $260.28, down 2.3%. The S&P 500 and Dow Jones Industrial Average rose 0.5%.

To some extent, a “beat” was expected. Melius Research analyst Scott Mikus, who said in a preview report that GE Aerospace had the potential to “blow out consensus estimates,” noting that Wall Street forecasts pointed to sequential quarterly declines in operating income and per-share earnings, an outcome he called unlikely.

Along with solid results, short- and long-term guidance was also raised. Management now expects 2025 operating profit of between $8.2 billion and $8.5 billion, up from a prior range of $$7.8 billion to $8.2 billion. Looking further down the road, GE Aerospace management is targeting 2028 operating profit of about $11.5 billion, up from prior guidance given in 2024 of $10 billion. What’s more, sales growth between now and 2028 is expected by double-digits annually, up from prior guidance of high single-digit growth.

GE Aerospace also introduced a new earnings per share target for 2028 of $8.40. The company is expected to earn about $5.60 in 2025.

The outlook reflects the solid demand for commercial jets as well as GE Aerospace’s improvements in engine service and reliability. Order backlogs for Boeing and Airbus jets stretch out roughly a decade at current production rates. Orders at GE Aerospace rose 20% year over year in the second quarter, leaving the company with a backlog of $175 billion.

The long-term outlook was updated Thursday after the company canceled its investor event at June’s Paris Airshow, following the tragic crash of an Air India Boeing 787 jet powered by GEnx engines.

The preliminary crash report from Indian officials indicated that mechanical switches controlling fuel to both engines were flipped to “CUTOFF” from “RUN” shortly after takeoff. Investigators didn’t have any recommendations for other operators of 787 jets or GEnx engines.

The quarter and outlook looked rock solid. The stock might not be rising because of elevated expectations from investors and Wall Street heading into the report. Analysts already project $11.6 billion in 2028 operating profit and earnings per share of about $8.60, according to FactSet. GE Aerospace management was essentially able to meet those numbers with its updated guidance. As for investors, shares of the jet-engine maker closed Wednesday at $266.18, up 0.6% and not far from their 52-week high of $266.86. It had risen 60% over the past 12 months.

How the stock will perform in the coming days, following the second quarter report, is anyone’s guess. Still, judging just how good things are right now is a welcome change for GE Aerospace investors who have had to worry about the company’s balance sheet, Covid-19, Boeing production, tariffs, and supply-chain problems in recent years.

Write to Al Root at allen.root@dowjones.com