Rolls-Royce Earnings Rise 7% on Planemakers’ Production

Rolls-Royce Holdings Plc (RR/), the world’s second-largest maker of aircraft engines, said first- half profit rose 7 percent, beating predictions, as accelerating production at Airbus SAS (EAD) and Boeing Co. (BA) spurred sales.

Shares of Rolls jumped the most in nine months after the U.K. company said underlying pretax profit rose to 637 million pounds ($987 million) from 595 million pounds a year earlier, higher than the 617 million-pound average estimate of analysts.

Plane makers are lifting output after building up record backlogs, with Airbus and Boeing together targeting more than 1,100 deliveries this year. That helped swell first-half revenue at London-based Rolls-Royce 6.6 percent to 5.72 billion pounds and boosted the order book 4 percent to 60.1 billion pounds.

“We view these as positive results in the key aerospace area, which for us remains the major driver of the stock,” said Robert Stallard, an analyst at RBC Capital Markets in London said. “Where performance in the first half fell short was in the marine and energy divisions.”

Rolls-Royce shares closed 6.7 percent higher at 885 pence, their biggest gain since Oct. 13, taking gains this year to 20 percent and valuing the company at 16.6 billion pounds.

Zafar Khan, a Societe Generale analyst in London, said the price jump likely reflected sustained sales of commercial-engine spares after peers General Electric Co., United Technologies Corp. and MTU Aero Engines Holding AG (MTX) reported declines.

Cash Focus

Chief Executive Officer John Rishton confirmed in a conference call the company’s full-year guidance of “good growth in underlying profit with cash flow around break-even.”

That excludes gains from the purchase of shares of German engine company Tognum AG (TGM) in a venture with Daimler AG and the sale of Rolls’s stake in International Aero Engines. The Tognum acquisition should be completed in the first six months of 2013.

Given global economic conditions, Rolls is content to hold on to cash and there are no immediate plans for further purchases, though the company will “look at opportunities as they come along,” Rishton said.

Rolls-Royce is “certainly not immune” from the global slump, the CEO said, with sales down 9 in the marine business, which accounts for about one-fifth of revenue. Sales at the energy and power-turbine market were down 18 percent.

Rolls completed the disposal of its 32.5 percent stake in IAE, a partnership with UTC (UTX)’s Pratt & Whitney unit, on June 29. That should result in 70 million-pound gain against full-year underlying profit, it said.

Regulatory Approval

The U.K. company remains a major parts supplier for IAE’s V2500 model, one of two engines offered for Airbus’s single- aisle A320 airliners. IAE’s remaining partners include Munich- based MTU Aero Engines Holding AG and Japanese Aero Engine Corp.

Rolls-Royce and Pratt plan to set up a new joint venture to power future Airbus and Boeing mid-sized passenger jets that may be fielded after 2020. Rishton said he’s hopeful that regulatory approval for the plan will be gained soon.

This month’s grounding of Boeing 787 Dreamliners operated by All Nippon Airways Co. (9202) following a component flaw in Rolls- Royce Trent 1000 engines won’t have any significant financial consequences, the CEO said. Four of the five idled airliners are flying again.

Rishton also said development of the Trent XWB engine for the Airbus A350 long-range airliner, is progressing well.

Rolls-Royce’s underlying figures exclude currency hedging and some financial-transaction revaluations.

To contact the reporter on this story: Robert Wall in London at rwall6@bloomberg.net

To contact the editor responsible for this story: Benedikt Kammel at bkammel@bloomberg.net

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.