Rolls-Royce shares fall as customers become frustrated with flying hours

Rolls-Royce stuck to its forecast for profit growth of at least 30 percent this year as its airline customers fly more and power demand for data processing systems and defense equipment increases.

But Rolls-Royce shares fell on Thursday due to slightly weaker-than-expected customer flying hours, with investors booking profits after rising 487 percent since Tufan Erginbilgic took over as chief executive in January 2023.

Robust demand from the defense industry and airlines has helped offset problems in the group’s aerospace supply chain, which the firm warned in August would cost it £150-200 million this year.

Rolls-Royce shares by mid-morning it was down 3.9 per cent or 22.40p to 551.60p.

Rolls-Royce, Airbus’s exclusive wide-body engine partner and Boeing 787 supplier, forecast underlying operating profit this year to be between £2.1 billion and £2.3 billion.

Tufan Erginbilgic said on Thursday: “The continued strong performance since the beginning of the year gives us further confidence in meeting our 2024 guidance, although the supply chain situation remains challenging.”

Demand in the defense and aerospace sectors is reported to remain stable. Moreover, engine hours in the latter case exceed pre-pandemic levels.

Flight time for Rolls-Royce’s large engines increased by 18 percent year-on-year and 102 percent above 2019 levels in the ten months to October, in line with the 100 to 110 percent forecast.

However, analysts at Shore Capital said engine hours were approaching the lower end of the forecast, which “may require a slight reduction.”

They added: “We expect the market to react slightly negatively due to the engine run-up and excellent share performance over the last couple of years.”

The Rolls-Royce group’s energy business recorded double-digit revenue growth, the company added, while government orders for energy systems were strong.

Rolls-Royce said operations in Electrical’s Advanced Air Mobility division were closed in September, coinciding with sales of its small engine division and naval propulsion segment.

Erginbilgic said Rolls-Royce was making good progress towards its medium-term targets as profits and cash flow improved.

He added: “There is more we need and want to do as we expand Rolls-Royce’s earnings and cash potential.”

The group noted in its update on Thursday: “. Our new organizational structure came into effect in July, creating a leaner, more focused organization with fewer layers.”

In August the company, which also powers ships and submarines and makes power generation systems, improved its outlook and reintroduced a dividend that had been slashed during the pandemic as the shutdown of air travel left it struggling to survive.