The logo of U.S. conglomerate General Electric is pictured at the site of its energy branch in Belfort

CHICAGO, July 26 (Reuters) – General Electric Co (GE.N) on Tuesday surprised Wall Street with higher quarterly profit and positive cash flow as recovery in the aviation industry propelled its jet engine business, sending its shares higher.

The Boston-based industrial conglomerate, however, said it was still grappling with supply-chain disruptions and inflationary pressures, which would pressure earnings this as well as next year.

“It is a challenging operating environment,” Chief Executive Larry Culp told Reuters in an interview.

Supply-chain bottlenecks have made it tougher for the company to deliver products to customers on time. To get around the problem, it is holding higher levels of inventory.

GE said supply-chain and macroeconomic pressures shaved off 5 percentage points from its revenue in the quarter through June.

It reiterated that its full-year results this year were on track to hit the low end of its forecast, but trimmed the full-year free cash flow forecast by about $1 billion.

In January, it projected adjusted profit in 2022 to be in the range of $2.80 to $3.50 per share and expected to generate $5.5 billion to $6.5 billion in free cash flow.

Culp said a “more conservative view” on part of the company was warranted due to economic and policy uncertainties.

The company’s shares were up 5.12% at $71.86 in morning trade.

While GE has yet to put out an earnings forecast for next year, Culp said profit and free cash flow in 2023 are now expected to be lower than its previous estimate.

A strong recovery in air travel, meanwhile, has bolstered demand at its engine business, which is the company’s cash cow. The unit reported a 27% year-on-year jump in revenue in the second quarter on the back of higher shop visits and spare part sales.

GE expects demand at its aviation unit to remain strong, resulting in more than 20% revenue growth and $3.8 to $4.3 billion operating profit this year.

Raytheon Technologies Corp (RTX.N), whose Pratt & Whitney segment makes jet engines, has also reported a jump in demand for its engines and aftermarket services. read more

Profit at GE’s healthcare unit, however, is expected to suffer this year due to supply chain disruptions, and freight and raw material inflation.

Those issues along with the expiration of a U.S. wind energy production tax credit have taken a toll on the company’s renewable energy business. As a result, GE said it no longer expects an improvement in the business in the second half of the year.

Adjusted profit for the quarter through June came in at 78 cents a share, above analysts’ expectations. Quarterly revenue at $18.6 billion also topped Wall Street estimates.

The company reported $162 million in free cash flow in the second quarter.

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