Rolls-Royce earnings wave on international travel rebound

August 4, 2023: Aero-engineer Rolls-Royce reported a strong recovery in profit as its new CEO’s reversal plan picks speed, helped by better pricing for maintaining the engines that power long-haul aircraft like the Airbus A350 and Boeing 787.

The British company reported a first-half underlying operating profit of 673 million pounds ($854 million), over five times the level of a year ago.

It said its profit would be more than double market expectations last week, and its full-year outcome would be 1.2-1.4 billion pounds, up from previous guidance of 800 million-1 billion pounds.

Chief Executive Tufan Erginbilgic, who joined the company in January, said the profit and cash generation jump reflected “greater productivity, efficiency, and improved commercial outcomes.

“We have tightly controlled our cost base to offset inflationary cost pressures,” he said Thursday.

Erginbilgic said the 16-point improvement in the civil aerospace margin to 12.4% – the highest for at least 15 years – had been achieved despite engine flying hours healing to 83% of pre-pandemic levels and supply chain challenges persisting.

The company had increased the price of shop visits – when engines are removed from aircraft for maintenance – by 12%, he told reporters, which along with commercial optimization, had flowed through to the bottom line.

Operating profit in its defense unit, which provides the engines that power Britain’s nuclear submarines, grew by a third, driven by solid revenue growth and a higher margin.

Power Systems its third central business unit reported flat profit at a lower margin. Erginbilgic said price increases would deliver a significant improvement in the second half.

Shares in Rolls rose to the highest level since March 2020 after it updated its forecasts last week. They were broadly flat in morning deals on Thursday.