Rolls-Royce share price down, sees lower profit in 2015

Rolls-Royce Holdings Plc warned on Friday that full-year earnings may decline as much as 14% this year as the company reported lower annual profit amid falling oil prices.

The world’s second-largest maker of aircraft engines said in statement it expects profit before tax in 2015 to stand between £1 400 million and £1 550 million. Rolls-Royce reduced its profit guidance twice during the past year.

The company also projected free cash flow to range between £50 million and £350 million, down compared to the £447 million reported in 2014, which was 43% lower compared to 2013.

Revenue is projected to land somewhere within the range of £13.4 billion to £14.4 billion, while the company said it will spent £49 million less on new projects in 2015 compared to last year, when capital expenditure stood at £449 million

The announcement also outlines, that Rolls-Royce will not be able to deliver on its pledge, made in February last year, to return to growth in 2015.

The company pointed to the decline of oil prices as a decision driver to reduce its future financial expectations. The company said lower oil prices pose a threat to its near-term profit, as the majority of Rolls-Royces clients have reduced their future spending, especially in the marine market.

For the past year, Rolls-Royce reported a pretax profit, excluding some items, of £1.62 billion, down 8% compared to £1.76 stated in 2013.

The company also reported its first decline in revenue since 2005, with a drop of 6% to £13.7 billion. Excluding certain items, revenue was £14.6 billion.

Net revenue in the twelve months to December was a £69 million compared with £1.37 billion in 2013.

The company contributed the results to lower demand for its power systems and bundled services that Rolls-Royce sells to energy companies, which has been substantially hurt by the lower oil prices.

“We have met guidance for 2014 revenue and profit in challenging conditions while continuing to build strong foundations for future growth,” said Chief Executive John Rishton. “The fundamentals of our business remain solid, with long-term growth in demand for the complex power systems we deliver.”

Rolls-Royce did not change on Thursday and closed at GBX 905.00 in London. On Friday the stock lost 0.72% to GBX 898.52 at 09:16 GMT, marking a one-year decrease of 11.93%. The company is valued at £16.89 billion.

According to the Financial Times, the 21 analysts offering 12-month price targets for Rolls-Royce have a median target of GBX 860.00, with a high estimate of GBX 1 310 and a low estimate of GBX 645.00. The median estimate represents a 4.97% decrease from the last closing price.