Rolls-Royce Holdings published strong financial results, mirroring those of its top rivals like GE Aerospace, Safran, and GE Vernova. The results demonstrated the ongoing demand across its three divisions, which are seeing strong tailwinds. Here are the top takeaways in its earnings.
Rolls Royce earnings takeaways
In a statement, Rolls-Royce said that its revenue jumped by 13% in the year’s first half to £9.05 billion. Most notably, the closely watched operating profit metric surged by 50% to £1.75 billion. This led to a 76% surge in its earnings per share. Tufan Erginbilgic, the CEO said:
“We now expect to deliver underlying operating profit of £3.1bn-£3.2bn and free cash flow of £3.0bn-£3.1bn this year. This builds further conviction in our mid-term targets, of underlying operating profit of £3.6bn-£3.9bn and free cash flow of £4.2bn-£4.5bn.”
These results are a significant improvement for a company whose Ergibilgic called a burning machine shortly after his tenure started. He has slashed cost across the business, exited some of its unprofitable businesses, and is working on a return to narrow-body aircraft engines.
Analysts note that luck has also played part during his tenure. He became CEO as the civil aviation business was emerging from the pandemic, leading to a surge in flying hours. Its civil aviation revenue jumped by 17% in the first half to £4.7 billion, while its profit rocketed up by 63% to £1.19 billion.
Read more: Will the Rolls-Royce share price hit 1,000p after its earnings?
Additionally, his tenure coincided with the start of the war in Ukraine and soaring tensions between the United States and China. These tensions led to a significant increase in defense spending by most western countries.
Its defense revenue rose slightly to £2.22 billion, whole the operating profit dropped slightly to £342 million. Its free cash flow jumped by 40% to £327 million, while its order backlog jumped by 120% to £18.8 billion.
Finally, the power segment coincided with the artificial intelligence (AI) boom that pushed power spending by data centers much higher. Its power revenue jumped by 20% to £2.04 billion, with its backlog rising by 23% to £5.6 billion.
The other key takeaway in its results is that its cash position has improved, as it jumped to £1.1 billion. It now expects to pay its bond maturity of £ 1b billion from its cash.
As a result, the company is targeting a dividend payout of between 30% and 40% of its underlying profits. It is also continuing with its £1 billion share buyback.
Implication for the Rolls-Royce share price
Rolls-Royce share price chart | Source: TradingView
These results came at a time when the Rolls-Royce stock price has been in a strong bull run. It has jumped from the year-to-date low of 550p to over 1,000p.
The stock remains above the 50-day and 100-day Exponential Moving Averages, a sign that bulls are in control. Therefore, the stock will likely continue rising as bulls target the key resistance at 1,100p.
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