Why GE Aerospace Stock Dropped After Beating Earnings
Key Points
GE Aerospace grew sales briskly in Q3.
Rapid order growth promises more growth to come.
Free cash flow dipped in Q3, but should bounce back before the year wraps up.
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GE Aerospace (NYSE:GE) stock, the airplane engine maker that remained after General Electric spun off its power and healthcare businesses in 2024, slipped 2.1% through 11 a.m. ET Tuesday despite beating earnings in its Q3 report this morning.
Analysts forecast GE Aerospace to earn $2 per share on $12.85 billion in sales. In fact, GE Aerospace earned $2.25 per share and its sales were nearly $13.3 billion (adjusted for one-time items).
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GE Aerospace Q3 earnings
GE Aerospace grew GAAP revenue 16% to $14.1 billion, driven primarily by engine sales to commercial carriers. Commercial sales grew 21%, versus only 7% growth at the company's defense business.
Profit margin declined 80 basis points to 19.9%, and free cash flow declined year over year to $2 billion, but GAAP earnings per share climbed 14% to $2.23. Operating profit surged 30% to $3 billion.
Best of all, GE Aerospace reported 49% growth in total orders placed in the quarter, $19 billion, which works out to a 1.35 book-to-bill ratio and implies that sales and profits will continue to accelerate in future quarters.
What's next for GE Aerospace stock
Speaking of which, GE updated its guidance through the end of this year. Management now expects revenue to grow at least 19%, yielding operating profit of perhaps $11 billion and adjusted earnings per share of about $8.05. Free cash flow, which missed analyst targets in Q3, will bounce back to $9.1 billion or better by the end of 2026, at least an 18% improvement over 2025.
Unfortunately, this will still leave GE Aerospace stock priced north of 36x FCF with only an 18% growth rate. That's at the upper edge of what I'd consider a "fair price" for GE stock -- and probably another reason the stock is falling after an earnings beat.
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Rich Smith has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends GE Aerospace. The Motley Fool has a disclosure policy.
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