Rolls-Royce Predicts Higher Full-Year Profit on Costs, Ships

Rolls-Royce Group Plc, the world’s second-biggest engine maker, raised its full-year earnings forecast, saying profit will be “modestly” higher than in 2009 as it reins in spending and boosts sales of ship turbines.

Improved cost controls and “strong trading” in the marine business in the first half helped offset a reduction in profitability at the jetliner-engines unit, where the market was “subdued,” London-based Rolls said in a statement today.

“The nature of our business is very long cycle -- we lag recessions going in, and we lag going out,” Chief Executive Officer John Rose said on a conference call, adding that the company’s performance in the first half was “robust.”

Adjusted net income slipped 3 percent in the six months to 346 million pounds ($541 million) from 362 million pounds a year earlier, excluding the impact of currency hedges, in line with the 345.8 million-pound estimate of analysts surveyed by Bloomberg. Sales rose 5.4 percent to 5.42 billion pounds.

CEO Rose said at the company’s annual meeting on April 29 that underlying profit would be “broadly similar” to 2009’s.

Rolls-Royce, which competes with General Electric Co. and United Technologies Corp’s Pratt & Whitney unit in the aero-engines market, rose 3.3 percent and was trading up 2 percent at 599.5 pence as of 8:39 a.m. in London. The stock has gained 26 percent this, valuing the company at 11.1 billion pounds.

Rolls reported a first-half loss of 334 million pounds, or 18.07 pence a share, compared with a profit of 1.86 billion pounds, or 99.95 pence, a year earlier, including adjustments to reflect the value of financial hedges unwound or “marked to market” at the end of the period.

Sales jumped 11 percent to 1.34 billion pounds at the marine unit, which makes power systems for the oil-exploration industry, specialist vessels and warships, with underlying profit advancing 55 percent to 171 million pounds.

Engine Question

Rose said it’s hard to make an argument for adding new engines to Airbus SAS and Boeing Co. single-aisle jetliners as the planemakers ponder whether to upgrade the planes or build entirely new models.

“Boeing are really saying the right option is a better aircraft later,” Rose said on a conference call. “In the case of Airbus, what we’ve said is we can’t see a business case for re-engining. If things change we would obviously review it.”

Rolls-Royce, one of 11 contractors slated to hold cost-cutting discussions with Britain’s Ministry of Defence as Prime Minister David Cameron’s coalition government seeks to slash spending, got a boost to its defense business yesterday with a 200 million-pound contract from India to power 57 BAE Systems Plc Hawk trainer aircraft.

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