Rolls-Royce Predicts No Marine-Unit Earnings Increase

Rolls-Royce Holdings Plc, the world’s second-largest aircraft-engine maker, said earnings at its marine unit won’t grow this year after customers delayed investment decisions on buying new equipment.

Underlying profit, or earnings excluding currency hedging and some one-time items, will be “broadly flat” at the marine division in 2012, and the unit will post a “modest increase” in sales on that basis, the London-based company said today in a statement. The order book at the division, which equips the U.S. Navy’s DDG-1000 Zumwalt Class destroyer, fell 8 percent in 2011.

The forecast for the marine unit contrasts with Rolls-Royce’s prediction of “good growth” in underlying group earnings and sales, led by sales of powerplants and services to planemakers Airbus SAS and Boeing Co. The company and carmaker Daimler AG bought German engine manufacturer Tognum AG last year to expand in supplying the shipbuilding and energy industries.

“The Marine & Energy guidance, excluding Tognum, are a bit disappointing, as we expected the original-equipment market recovery earlier in 2011,” Eric Chadeyras, an analyst at Natixis Equity Research in Paris, said in a note today. He has a “neutral” rating on the stock.

Rolls-Royce fell as much as 4.6 percent to 749 pence, the biggest intraday drop since Nov. 1, and was down 3.1 percent at 2:02 p.m. in London. That pared the stock’s gain this year to 1.9 percent.

Growth in 2011

Net income jumped 58 percent last year to 850 million pounds ($1.35 billion). Underlying pretax profit rose 21 percent to 1.16 billion pounds. Analysts estimated underlying profit at 1.13 billion pounds in a Bloomberg survey.

Underlying revenue increased 4 percent to 11.3 billion pounds, as gains of 13 percent at the civil-aerospace unit and 5 percent at the defense-aerospace division more than made up for declines of 12 percent at the marine unit and 3 percent at the energy business. Last year, about 50 percent of Rolls-Royce’s revenue came from civil aerospace and 20 percent from the marine business, with the remainder from military engines and energy.

The group order book increased 5 percent to a record 62.2 billion pounds following an increase in air travel and as Airbus and Boeing sold airliners to carriers upgrading to more fuel-efficient models and expanding in emerging markets. Last year’s profit was boosted a 60 million-pound payment from the U.K. government for the early cancellation of contracts, including one for the Harrier jumpjet.

Marine Unit Contracts

Some marine-business orders for original equipment forecast for the second half didn’t materialize as governments and companies postponed ship projects, the company said. Contracts won by the unit included projects to supply 10 U.S. Navy littoral combat ships, which Rolls-Royce said is its largest-ever surface-fleet order, and pressurized-water reactor technology for U.K. nuclear submarines.

“We are encouraged by the order intake as a good lead indicator,” with new contracts increasing 15 percent last year to 2.1 billion pounds, Finance Director Mark Morris said today on a conference call with analysts. “And we are confident the order book will grow again in 2012 although we continue to expect to see pricing pressure going forward.

The company’s broad product offering and balance between selling new equipment and providing maintenance services is acting as a buffer during the economic slowdown, Chief Executive Officer John Rishton said on a separate call.

The takeover of Tognum gave Rolls-Royce and Stuttgart, Germany-based Daimler access to the world’s second-biggest manufacturer of high-speed diesel engines for the marine, engine and defense industries after Caterpillar Inc.

Net cash at Rolls-Royce fell to 223 million pounds from 1.53 billion pounds a year earlier following acquisitions. Morris said he’s ‘‘pleased with the cash performance.”

Before it's here, it's on the Bloomberg Terminal. LEARN MORE