Low oil prices are great for consumers, but not so for companies that sell heavy equipment to energy producers hit hard by plummeting oil prices. On Friday, Rolls-Royce Holdings plc warned that its profits would be slashed by as much as 13 percent this year, a much steeper drop than the London-based holding company previously estimated.
“The external environment has deteriorated in some of our major markets,” the company said in its 2014 full-year results. “In particular, oil prices have halved over this period, creating increased uncertainty for many of our markets and customers.”
The biggest hit on profits will come from the company’s power and propulsion systems for its marine offshore business as energy companies feel the bite from the slide in oil prices.
The British maker of jet engines, gas turbines and submarine power reactors said 2015 profits will be between 1.40 billion and 1.55 billion British pounds ($2.16 billion to $2.39 billion). Last year, the company reported earnings of 1.62 billion British pounds, or $2.5 billion, while suffering its first sales decline in a decade. Rolls-Royce Holdings is a separate company from the ultra-luxury car company that shares its name, which is owned by BMW.
Rolls-Royce Holdings’ share price dipped in London after the announcement, but rebounded to gain 4.7 percent to 947.53 pounds as investors welcomed the company’s restructuring plans that could put it on track to perform better in the future.
The world’s second-largest maker of aircraft engines is lowering its capital expenditures (how much a company invests in upgrades or acquisitions of physical assets, like manufacturing facilities) from $999.6 million to $924.2 million.
Rolls-Royce also is restructuring its aerospace division, which is leading to a layoff of 2,600 employees that’s expected to be completed this year. In December it completed its $1.2 billion spinoff of its energy-related gas turbine and compressor business to Siemens AG, the Munich, Germany, operating technology company.
Rolls-Royce chief executive John Rishton called 2014 a “mixed year,” thanks in part to delays in customer orders for civil aviation engines that left the company with excess production capacity in its core business.