World Economy

Rolls-Royce Warns of Fall in Profits

Rolls-Royce Warns of Fall in ProfitsRolls-Royce Warns of Fall in Profits

World’s second-largest maker of aircraft engines had already cut its 2015 forecasts in October.

British engineer Rolls-Royce has warned profits this year could fall by as much as 13% on top of an 8% drop last year, saying the low oil price had increased uncertainty for many of its markets and customers, Fortune reported.

The world’s second-largest maker of aircraft engines after US group General Electric had already cut its 2015 forecasts in October, when it shocked the market by warning there would be no growth this year.

The company said it now expected to make a pretax profit of 1.4 to 1.55 billion pounds ($2.2-2.4 billion) in 2015, a drop of up to 10% points on its previous forecast in October for profits to be up to 3% lower.

However, analysts had already been expecting a drop in profit this year to 1.481 billion pounds before tax, in line with the mid-point of Rolls-Royce’s new range.

 Shares Lower

Shares in the company were lower, holding the partial recovery since October’s shock profit warning, when the price fell by 16% in one day to a two-year low of 787.5 pence.

At the time the company said the market for its main aircraft engine business would strengthen but customers in the oil and gas, mining, construction, industrial and agricultural sectors were cancelling or delaying orders.

“For a company that had a bit of a stinker last year, it does look like it’s settling down. There’s probably more here to say things are steadying than to worry about,” said Espirito Santo analyst Edward Stacey, who has a “buy” rating on the stock.

On Friday Rolls-Royce said it made an underlying pretax profit last year of 1.617 billion pounds, down 8% on the previous year but slightly ahead of the average of analysts’ forecasts of 1.601 billion pounds.

Investors in the company have had a rough ride over the past 12 months and the shares are still down 25 percent.

 In widening the range for its profit forecast for this year the company reiterated it was also seeing lower demand for propulsion systems and related services in its marine business which supplies the offshore oil and gas industry, as well as cutbacks from customers who use its equipment in power generation, construction and mining projects.

Additionally the company said that past delays in some aircraft development projects, the two biggest being Boeing’s 787 and Airbus’s A350 widebody jets, has meant new engine production capacity which Rolls-Royce has already put in place is being under-utilized.