Upbeat Rolls-Royce says it’s finally getting over engine woes

(Bloomberg)—

Rolls-Royce Holdings Plc said it’s getting a grip on cost overruns from Boeing Co. 787 engines that have blighted earnings and cash flow in recent years.

The stock rose the most in 18 months Thursday after Chief Executive Officer Warren East said estimated charges against the Trent 1000 turbine remain at 2.4 billion pounds ($3.1 billion) through 2023. He said there’s been good progress in resolving the engine’s last outstanding issue with a faulty blade.

Rolls Royce predicts underlying operating profit will gain 15% this year after increasing by a quarter in 2019, and East said the London-based company is finally delivering the momentum in cost improvements needed to achieve a step-change in performance. The number of 787s idled for shop visits should drop to single digits by the end of the second quarter.

“Rolls-Royce sounds rather confident,” Jefferies International analyst Sandy Morris said in a note. “The key long-term drivers were powerfully positive.”

Rolls-Royce rose as much as 6.6%, the biggest intraday gain since August 2018, and were trading 5.2% higher as of 8:11 a.m. in London.

The company expects to deliver 450 of the wide-body engines in which it specializes this year, a drop of about 12% from 2019 as both Boeing and Airbus SE trim build rates for some larger planes. That’s unlikely to immediately impact earnings as turbine makers generally make a loss on new sales, deriving the bulk of profit from through-life maintenance.

East said the coronavirus outbreak may hurt air-traffic growth in the near term but that long-term trends most affecting Rolls remain intact. The company excluded any possible material impact from its 2020 projections.

(Updates with share price)

To contact the reporter on this story: Charlotte Ryan in London at [email protected]

To contact the editors responsible for this story: Anthony Palazzo at [email protected], Christopher Jasper, Andrew Noël

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