Will General Electric Aviation Fly High in 2Q16?



Commercial and Military made up General Electric’s sales  

General Electric’s (GE) Aerospace (ITA) segment is its largest business unit. It contributed to 24.0% of industrial sales in 1Q16. Equipment and services contributed approximately 44% and 56%, respectively, to the total aviation segment revenues in 1Q16. Equipment revenues grew 2.0% while services rose 17.0%, year-over-year in 1Q16. The robust increase in services was due to commercial and military services.

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Revenues in General Electric’s Aviation segment came in better than expected, growing 10.0% year-over-year to $6.2 billion in 1Q16. Sales growth came on the back of growth in global passenger growth. Both international and domestic markets witnessed good growth along with higher shipments and strength in services. The company shipped 53 GEnx (aircraft engine) units versus 51 last year.

Profits rise on margin expansion

Operating profits in the segment rose 16% to $1.5 billion on higher service volumes and cost savings. The aviation segment’s margins’ expanded by 110 basis points to 24.3% due to strong execution.

Robust guidance for 2Q16 as well as fiscal 2016

Aviation had another good 1Q16. The LEAP (all new jet engine product) launch remains on track. General Electric’s Aviation segment is expected to ship 15 to 20 units in 2Q16 and about 110 engines for fiscal 2016. All its engines are performing well, and all were meeting fuel specifications.

Investors interested in trading aerospace and defense can look into the PowerShares Aerospace & Defense ETF (PPA) and the SPDR S&P Aerospace & Defense ETF (XAR). Major holdings in XAR include Honeywell (HON) at 4.0%, United Technologies (UTX) at 4.0%, and Rockwell Collins (COL) at 3.9%.

Let’s analyze the reason for GE’s stable performance. In next part of this series, we cover GE’s stock forecasts for fiscal 2016.


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