Larry Culp has no doubts about his company's future.
"Our purpose has never been clearer," the CEO of GE Aerospace (GE) said during the company's second-quarter earnings call. "To invent the future of flight, lift people up and bring them home safely. Those last four words, bring them home safely, is a serious responsibility."
Culp made his comments on July 23, just three months after General Electric, which traces its roots back to Thomas Edison, completed its historic split into three separate and independently operated companies: GE Healthcare, GE Vernova, and GE Aerospace.
"At any point, there are 900,000 people in the sky with our technology underwing, which is why safety and quality are at the center of everything that we do," he said during the company’s first earnings call as an independent company.
Speaking from London near the Farnborough International Airshow, Culp said, "GE Aerospace is an exceptional franchise with the industry’s largest and growing commercial propulsion fleet and is the rotorcraft and combat engine provider of choice."
CEO says company facing challenge 'head on'
While the company made progress in services in the quarter, Culp acknowledged that new engine output was disappointing, dropping 20% sequentially.
The worrisome trend, a reflection of ongoing supply chain problems, is a headwind for GE Aerospace's sales and profit.
"It’s a clear challenge that we are facing head-on, accelerating the use of Flight Deck in partnership with our suppliers as we work to solve the ongoing supply chain constraints," he said, referring to GE Aerospace's proprietary lean operating model.
Related: GE Aerospace leaps after boosting profit forecast following historic split
The company said material shortages have affected shipments of engines for both narrowbody and widebody jets.
Deliveries of LEAP engines, which power Airbus (EADSF) and Boeing (BA) narrowbody aircraft, were down 29% in the June quarter from a year ago.
GE Aerospace scaled down estimates for LEAP output this year for the second time since March and now expects production to be flat to up 5% this year, against the 10%-15% growth estimated in April, Reuters reported.
The company said in the last quarter that "the common denominator" affecting growth across both services and new engines is constrained material supply, with 80% of material input shortages tied to nine suppliers across 15 supplier sites.
GE Aerospace quarterly results
Despite the speedbump, GE Aerospace nevertheless posted earnings of $1.20 per share, up 62% from a year ago, and consensus estimates for 99 cents. Revenue rose nearly 4% to $9.1 billion, beating forecasts for $8.44 billion.
Total orders were up 18% to $11.2 billion, and GE generated $1 billion in cash from operating activities.
GE now sees full-year earnings coming in at $3.95 to $4.20 per share, up from $3.80 to $4.05 per share. The consensus estimate was for earnings of $4.08 per share.
Stock analyst cites 'strong' second quarter
Culp told analysts, "We all need to do better, and we need to be more collaborative and fully in problem-solving mode."
"That’s the headset that we have at GE Aerospace," he said. "I’m convinced while that takes different forms of different suppliers, that is where every one of those nine suppliers across those 15 sites are."
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TheStreet Pro’s Stephen Guilfoyle wrote that Culp “continues to make something great out of something that was far from it a few years ago.”
“The positive free cash flow and the expectation for a continuance of the ability to produce in that manner is a key weapon in the creation of this stock's future and sustainable success,” he said.
"Hopefully, it is up and away for GE from here," TheStreet Pro's Bruce Kamich wrote in a recent column. "Aggressive traders could buy a one or two-day shallow dip. Risk to $158, with $200 being our price target for now."
Several analysts adjusted their price targets for GE Aerospace following the earnings report.
RBC Capital raised the firm's price target to $190 from $175 and kept an outperform rating on the shares.
GE Aerospace posted “strong” second-quarter results as its services performance offset supply chain challenges, the firm said. Soft LEAP deliveries also helped GE Aerospace margins, RBC said.
The firm said it continues to see some conservatism in the management's second-half outlook, though the guidance raise will continue to support the "very positive sentiment" on the name.
UBS raised the firm's price target on GE Aerospace to $215 from $209 and kept a buy rating on the shares. The quarterly results exceeded a high bar, with further upside potential, the analyst tells investors. UBS sees more than $7 billion of EBIT this year.
Wells Fargo raised the firm's price target on GE Aerospace to $205 from $192 while keeping an overweight rating on the shares.
GE came in ahead of the firm's expectations in the second quarter, and with the guide calling for a big second half of the year equipment recovery, there could be earnings upside if these deliveries fall short, Wells Fargo said.
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