GE Aerospace (GE) Q2 2025 earnings review
Services Powerhouse Fuels Massive Beat-and-Raise; FY28 Outlook Lifted by $1.5B
GE Aerospace delivered an exceptional second quarter, with adjusted revenue surging 23% and free cash flow nearly doubling year-over-year. The performance was driven by the Commercial Engines & Services (CES) division, where revenue grew 30% on robust aftermarket demand. This operational strength enabled management to significantly raise its 2025 guidance for profit and cash flow, while also increasing its long-term 2028 operating profit outlook by a substantial $1.5 billion to ~$11.5 billion. The company further signaled its confidence by boosting its 2024-2026 capital return target by 20% to approximately $24 billion.
🐂 Bull Case
The high-margin services business is firing on all cylinders, with revenue up 29% in the CES segment. Foundational fleets like the CFM56 and GE90 are outperforming prior expectations, providing a highly profitable and resilient revenue stream.
Free cash flow of $2.1 billion nearly doubled YoY, with conversion remaining well over 100%. This financial strength underpins the newly increased $24 billion capital return program through 2026, a powerful signal of management's confidence.
Raising the 2028 operating profit outlook by $1.5 billion to ~$11.5 billion provides a clear roadmap for significant long-term value creation, driven by the durable growth of the aftermarket.
🐻 Bear Case
The raised full-year guidance implies a second half where EBIT is nearly $500 million lower than the first half, a reversal of typical seasonality. Management attributes this to R&D, corporate costs, and GE9X headwinds, but it suggests the growth rate will moderate.
The Defense & Propulsion Technologies (DPT) segment grew revenue by a solid 7%, but this significantly lags the 30% growth in commercial. DPT remains a steady but much smaller contributor to overall growth.
⚖️ Verdict: 🟢🟢
Very Bullish. The sheer scale of the beat and the magnitude of the guidance raise for both 2025 and 2028 are exceptionally strong signals. The services engine is proving more powerful and durable than previously modeled, generating massive cash flow that is being returned to shareholders. The implied H2 slowdown is a point to monitor but is overshadowed by the upgraded multi-year outlook.
Key Themes
Commercial Services is the Growth Engine
The aftermarket business was the standout performer. CES services revenue grew 29%, driven by strong demand for both spare parts (+25%) and internal shop visits (+20%). Critically, foundational fleets are performing better than expected. Management now anticipates the peak for CFM56 shop visits, previously expected in 2025, will plateau for several more years, and the GE90 fleet will see ~100 more shop visits through 2028 than previously modeled. This extends a highly profitable revenue tail.
FLIGHT DECK Delivering Tangible Supply Chain Improvements
Management's proprietary lean operating model, FLIGHT DECK, is translating into better output. Material input from priority supplier sites increased 10% sequentially, with suppliers delivering over 95% of committed volume. This enabled a 45% YoY increase in total engine deliveries in Q2, including a 38% ramp in LEAP deliveries, showing progress in overcoming prior constraints.
LEAP Program Maturing and Gaining Momentum
The LEAP engine program is hitting key milestones. The durability kit for the LEAP-1A is now in all new engines and shop visits, designed to improve time-on-wing by over 2x to match the industry-leading CFM56. Management is confident in certifying the LEAP-1B durability kit in H1 2026. This technical maturation supports a strong aftermarket ramp, with the LEAP installed base expected to triple by 2030.
Aggressive Capital Allocation Signals Confidence
The company increased its planned capital returns for the 2024-2026 period by 20%, from ~$19 billion to ~$24 billion, subject to Board approval. This includes ~$19 billion in buybacks and ~$5 billion in dividends. Beyond 2026, the company expects to return at least 70% of free cash flow. This aggressive posture underscores deep confidence in sustained cash generation.
Guidance Implies Second-Half Growth Moderation
A notable concern raised on the call is that the full-year 2025 guidance implies second-half operating profit will be nearly $500 million lower than the first half. Management attributes this to the timing of GE9X engine shipment losses, a step-up in R&D, and higher corporate costs. While this is a planned dynamic, it represents a sharp deceleration from the blistering pace of H1 and a break from historical seasonality that warrants monitoring.
GE9X Program is a Known Profit Headwind
As GE Aerospace ramps production of the new GE9X engine for the Boeing 777X, it will incur significant losses. Management expects these losses to be 'a few hundred million dollars higher in '28 versus where we are in '25.' While factored into the long-term outlook, this will act as a drag on overall company margin expansion for several years.
Other KPIs
Trend: Accelerating. FCF nearly doubled from $1.1B in the prior year, showcasing strong cash conversion from higher profits and disciplined working capital management. The company raised its full-year FCF guidance to $6.5B-$6.9B and continues to target conversion above 100% of net income.
Trend: Stable. The margin expanded 50 basis points year-over-year, driven by high-margin services volume and price increases. This profitability is the core driver of the entire company's performance and guidance raise.
Trend: Stable. The robust backlog, including over $140 billion in commercial services, provides excellent long-term revenue visibility. Recent large widebody engine wins, such as with Qatar Airways, continue to replenish the equipment backlog.
Guidance
Accelerating. This is an increase from the prior 'low-double-digits' guidance. The revision is driven by an improved outlook for both commercial services (now high-teens) and commercial equipment (now high-teens to 20%), reflecting better material availability and strong demand.
Accelerating. Raised by $350 million at the midpoint from the prior $7.8 - $8.2 billion range. This implies expected full-year growth of over $1 billion for the second consecutive year, driven primarily by the improved services outlook.
Accelerating. A significant $1.5 billion increase from the prior ~$10 billion outlook provided in March 2024. This revision demonstrates higher conviction in the long-term profitability of the services backlog, with foundational fleets performing better and new fleets like LEAP ramping.