How Much Will Aviation Segment Contribute To GE’s Top Line Growth?

by Trefis Team
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General Electric (NASDAQ: GE) performed modestly over the past couple of years. The company saw its revenue grow by just over 5% between 2015-2016. However, its history of controversial accounting and mixed results with acquisitions hit the company hard in 2017. The company saw its revenue fall by just over 1%, while its stock plummeted by 55% in 2017. The negative sentiment continues to hover over the company, as its stock fell below $13 earlier this year (down from nearly $30 in early 2017) before a modest recovery. The company’s turnaround could take some time and will depend on an improving business environment and global growth, and therefore we expect GE to report mixed results in the next few quarters.  The Aviation segment contributes nearly 22% of the company’s overall revenue and was the third fastest growing segment, at over 5% annually between 2015-2017. The strong growth was largely due to increased demand for LEAP engines, commercial and military spare parts and cost efficiency.

Based on recent market trends and the near-term outlook provided by the company’s management, we forecast GE to report 2-3% revenue growth in the next two years, from $122 billion in FY 2018 to about $127 billion in FY 2020. Of the estimated $5.3 billion added to net revenues, we estimate that the Aviation segment will contribute over $1.6 billion, or about 31% of the incremental revenues. We have summarized our expectations on our interactive dashboard platform. If you disagree with our forecasts, you can change the key drivers for the segment to gauge how changes will impact its expected revenue.

Estimates for Key Growth Drivers

The Aviation segment contributes nearly 22% of the company’s overall revenue and has seen its revenue grow by over 5% annually between 2015-2017. This was largely driven by increased demand for LEAP engines, commercial and military spare parts and cost efficiency. GE is one of the leading players in the aviation segment and is well positioned to increase its share over time. The Aviation segment holds substantial growth potential for GE, as a result of the increasing demand for its LEAP engines and global defense and military spending.  We expect the segment’s tailwinds to provide decent medium-term growth opportunities and drive segment revenue to slightly under $30 billion (by 2020) driven by strong growth in the Military business, air freight volumes, and the delivery of more than 2000 LEAP engines by the end of 2020. Further, its production costs are expected to decline in the near term as a result of the continued efficiency in the LEAP engine, which should help aid a potential margin recovery for GE.

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