Rolls-Royce Holdings Plc said first-half earnings will be “materially above consensus expectations” as a surge in air travel boosts the lucrative engine-maintenance business.
(Bloomberg) — Rolls-Royce Holdings Plc said first-half earnings will be “materially above consensus expectations” as a surge in air travel boosts the lucrative engine-maintenance business.
The company expects to report operating profit of as much as £680 million ($877 million), which is twice the consensus estimate of £328 million, Rolls-Royce said in an unscheduled trading update. The jet engine manufacturer also raised its full year guidance to expect operating profit of £1.2 billion to £1.4 billion, from a previous estimate of £800 million to £1 billion.
Rolls-Royce is in the midst of a turnaround under Chief Executive Officer Tufan Erginbilgic, who called the company a “burning platform” shortly after coming aboard at the start of the year. The company, which primarily makes engines for widebody jets that connect long-haul destinations, saw demand wiped out at the height of the pandemic when airlines were forced to ground fleets amid travel restrictions and quarantines.
“Better profit and cash generation reflects greater productivity, efficiency and improved commercial outcomes,” Erginbilgic said in the statement. “Despite a challenging external environment, notably supply chain constraints, we are starting to see the early impact of our transformation in all our divisions.”
Shares rose as much as 17% at the open in London. Before today, the stock had gained 64% in value this year, making it the best performer on the FTSE 100 Index in the period.
The company also expects its defense business to report a 38% increase in operating profit, amid the ongoing war in Ukraine. At the same time, Rolls-Royce flagged that it expects to have to pay £100 million as part of the outcome of a legal judgment, details of which it didn’t specify.
Engine flying hours in the first half of 2023 have risen to 83% of 2019 levels, according to Rolls-Royce. The company said it expects to generate as much as £360 million in free cash flow in the period, helped by higher prices and the collection of overdue debt.
Engine makers typically generate large parts of their revenue from servicing turbines installed on global airline fleets. Rolls-Royce is the sole supplier of engines for the Airbus A350, and also makes engines for jets like the Boeing Co. 787 Dreamliner and the now-discontinued Airbus A380.
Rolls-Royce is scheduled to report full earnings on Aug. 3.
(Updates with share prices in fifth paragraph)
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