Rolls-Royce cuts profit forecasts as new CEO takes helm

Mon Jul 6, 2015 6:16am EDT
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By Sarah Young

LONDON (Reuters) - British engineer Rolls-Royce (RR.L: Quote) cut profit expectations for the third time in nine months on Monday, increasing the challenge for its new chief executive.

Shares in the 131-year-old company dropped as much as 10 percent after it also scrapped a plan to buy back 1 billion pounds ($1.6 billion) of shares halfway through the program.

Rolls-Royce has been struggling for some time with a drop in demand from energy customers for its marine equipment following a plunge in oil prices.

But the firm said on Monday its aircraft engine business was also suffering during a switch from its Trent 700 engine to the newer Trent 7000, with fewer of the legacy engines being sold than anticipated.

That turns up the heat on new CEO Warren East, who took the helm only four days ago. The aerospace business accounted for almost half of 2014 revenues and has been riding a surge in demand for fuel-efficient engines for passenger jets, though it has lagged rival General Electric (GE.N: Quote) on profit margins.

Hargreaves Lansdown analyst Keith Bowman said that while it was common for new CEOs to cut expectations, the warning was another blow for investor trust in Rolls-Royce.

"The company's prior push to reduce earnings volatility and surprises looks to have been completely unwound, with investors today suffering another shock," he said.