By Dominic Chopping
Shares in Rolls-Royce Holdings slipped Thursday after a trading update showed a key performance metric is tracking toward the lower end of its full-year guidance range.
Shares in the company were 3.5% lower in afternoon European trade, but have grown more than six-and-a-half times in the last two years.
The U.K. aircraft engine manufacturer said large engine flying hours in the 10 months to the end of October was 2% above the level achieved in the same period of 2019--before the pandemic took hold and threw the airline industry into disarray.
That compares with the full-year guidance range for large engine flying hours to land between flat and 10% above the 2019 level.
Engine flying hours are an important metric for the company as most of its engines are maintained under long-term service agreements, with the amount an airline pays dependent on the number of hours the engine has been used.
"The performance to October now points to the lower-half of the guide versus consensus at 5% which may disappoint some," Jefferies analysts Chloe Lemarie and Ben Brown said in a note.
However, the company maintained all of its full-year targets and said current trading is in line with its expectations, with a continued good performance giving it further confidence in the delivery of its guidance, despite a challenging supply chain environment.
Rolls-Royce last year launched a plan to tighten focus, prioritize and improve its core activities and seek efficiencies as it looks to drive profitability. The multiyear transformation plan aims to deliver between 400 million and 500 million pounds ($515.2 million-$644 million) in cost savings in the midterm with cumulative savings of more than 250 million pounds expected by the end of 2024.
"Our transformation of Rolls-Royce into a high-performing, competitive, resilient and growing business continues with pace and intensity," Chief Executive Tufan Erginbilgic said. "There is more we still need and want to do, as we expand the earnings and cash potential of Rolls-Royce."
Rolls-Royce said demand remains strong, both in its civil aerospace business that sells and maintains aircraft engines, and in its defense unit that produces military aircraft engines, naval vessel propulsion systems and powers the U.K.'s nuclear submarine fleet.
The company also manufactures small modular reactors, and after recently being named preferred supplier to build the reactors by the Czech Republic, it has been shortlisted as one of the four potential providers in the U.K. Government's tender process.
Jamie Murray at Shore Capital said the general performance of the group appears to be reasonable, but a negative market reaction was expected due to the engine flying hours metric and in light of the "excellent" run the stock has had over the last couple of years.
"Engine flying hours are towards the lower end of guidance, which may require modest downgrades and the supply chain remains challenging."
Rolls-Royce still expects to deliver full-year underlying operating profit between 2.1 billion and 2.3 billion pounds and free cash flow of between 2.1 billion and 2.2 billion pounds.
Write to Dominic Chopping at dominic.chopping@wsj.com
(END) Dow Jones Newswires
November 07, 2024 09:07 ET (14:07 GMT)
Copyright (c) 2024 Dow Jones & Company, Inc.
Comments