Engine maintenance demand offsets oil price impact GE Aviation (GE.US) Q1 performance exceeds expectations, expected full-year profit will reach high-end guidance

Despite the Iran conflict causing a surge in fuel costs and disruptions in the supply chain, GE Aviation (GE.US) delivered a better-than-expected quarterly performance thanks to strong demand for air travel. The company also expects full-year profit to reach the high end of the expected range, but warns that high oil prices, fuel supply restrictions, and a global growth slowdown could bring short-term impacts. Data shows that GE Aviation's total revenue in the first quarter increased by 25% to $12.39 billion, with adjusted sales reaching $11.6 billion, up nearly 30% year-on-year, exceeding market expectations of $10.7 billion. Operating profit increased by 18% year-on-year to $2.5 billion, higher than analysts' average expectation of $2.24 billion. Adjusted earnings per share were $1.86, higher than analysts' expectation of $1.60 and the previous year's $1.49. In recent times, the Iran conflict has disrupted the operations of many airlines in the Middle East and led to a surge in aviation fuel prices. Many airlines have announced capacity cuts to deal with the additional billions of dollars in fuel costs. At the end of February this year, the US-Israeli joint strike against Iran disrupted transportation in the Strait of Hormuz, causing the most severe impact on global oil supply since the COVID-19 pandemic, and leading to a surge in aviation fuel prices. Faced with sharp cost increases, major airlines have been forced to reduce flights and suspend unprofitable routes. The market expects that this may restrain their spending on aircraft maintenance and aftermarket services. However, GE Aviation's sales continue to grow, mainly due to strong demand from airlines for spare parts and maintenance services. Airlines like Boeing Company (BA.US) and Airbus (EADSY.US) have increased their deliveries, but the supply of new aircraft still cannot meet airline demand, forcing the latter to extend the life of their older fleets. This supply-demand tension benefits engine manufacturers - as their profits come not primarily from engine sales but from long-term service contracts with airlines. Additionally, the supply chain situation at GE Aviation is improving, helping to deliver more new engines. In the first quarter, the company's commercial engines and services business saw a revenue increase of 34% to $8.92 billion, while the defense and propulsion technology business saw a 19% revenue increase to $3.21 billion. Commercial engine orders increased by 93% year-on-year to $17.3 billion, and defense orders increased by 67% to $6.2 billion. JPMorgan analyst Seth Seifman pointed out in a research report, "Despite recent impacts on air travel, the supply-demand imbalance in engine maintenance work remains severe and is expected to continue in the coming quarters." Looking ahead, GE Aviation reiterated its guidance for full-year earnings per share of $7.10 to $7.40 in 2026, and stated that due to a strong start to the year, actual results are expected to trend towards the high end of the expected range. The company also updated its macro assumptions: expecting Brent crude oil prices to remain high until the third quarter, before easing towards the end of the year; considering the short-term impacts of fuel supply constraints, as well as expectations of weak global GDP growth in 2026, with flat or low single-digit growth in flight departures and landings. It should be noted that the company's guidance does not assume a global recession. "Facing the dynamic geopolitical landscape of the GEO Group Inc, we maintain our annual guidance. Based on the strong momentum at the start of the year, annual performance is expected to trend towards the high end of the range," said CEO Larry Culp in a statement. Boosted by the positive performance, GE Aviation's stock price rose more than 4% in pre-market trading, but as of the time of writing, the stock had turned negative. Since the outbreak of the Iran conflict at the end of February, the company's stock price has been under pressure, falling around 1.4% year-to-date as of Monday's close, underperforming the S&P 500 index, which has risen nearly 3.9% during the same period.