Rolls-Royce Falls as Engine Maker Warns of Economic Headwinds

By Scott Kanowsky 

Investing.com -- Shares in Rolls-Royce (LON:RR) fell in early European trading on Thursday after the aero-engine maker warned of looming economic challenges despite reporting more than a billion-pound improvement in first-half cash outflow.

The London-listed company said its key free cash outflow was £1.1 billion better than the prior period, led mostly by increased flying hours of the widebody aircraft central to the business.

But Rolls-Royce said external headwinds remain, particularly from the war in Ukraine, inflationary pressures, and supply chain constraints. It expects these trends to "persist into 2023," adding that it is moving to cut costs and consolidate its supply lines to mitigate these risks.

The firm also confirmed its full-year financial guidance, saying it expects to report low-to-mid-single digit underlying revenue growth, a "broadly unchanged" operating profit margin, and "modestly positive" free cash flow in 2022.

"Our full year guidance is based on expected improvement in Civil Aerospace in the second half driven by planned higher spare large engine sales and large engine shop visits," Rolls-Royce said in a statement.

In the six months to June 30, underlying operating margin dipped to 2.4% from 5.9%.

Revenue at Rolls-Royce, whose major clients include jet builders Airbus Group (EPA:AIR) and Boeing (NYSE:BA), ticked up to £5.31 billion against the previous half-year figure of £5.23 billion in 2021. Driving this increase was record order intake at the company's power systems division.

Shares dropped by 4.65% as of 03:40 EST (0740 GMT) and are down by more than 15% over the one-year period.