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Rolls earnings power up
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March 2, 2000: 11:40 a.m. ET
Aero-engine maker posts 11% rise in earnings on record sales; shares flop
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LONDON (CNNfn) - British aero-engine maker Rolls-Royce posted a sharp rise in full-year earnings Thursday only to see its shares slide as investors warned of a cyclical downturn in the business.
Roll-Royce chairman Ralph Robins rounded on critics who claimed the company would not meet its 2000 target of double-digit sales growth and chose to consign the company to the "old economy" dustbin.
Rolls-Royce reported pre-tax profits up 11 percent at 360 million pounds ($576 million) compared with 325 million a year earlier, in line with expectations. Rolls-Royce (RR-) shares slumped more than 8 percent to 191 pence as analysts dumped the stock, cutting the company's market value to 2.96 billion pounds.
"It is deeply frustrating," said Robins in an interview with CNNfn. "We are a high-tech stock if ever there was one," he said, noting that 9 percent of the company's procurement budget was already spent online.
 Some analysts said the company suffered from the cyclical nature of the aerospace business, which made it unpopular with technology-obsessed investors.
"Rolls is very much 'old economy' and is a very low-growth, highly cyclical business, and nothing they've done has really changed that, including the purchase of Vickers,"' analyst Nick Cunningham at Salomon Smith Barney told Reuters.
"We don't see a cycle at the moment," countered Robins, predicting that Rolls would sell more aero-engines over the next two years than in 1999.
The company is engaged in a fierce three-way battle in the commercial aero-engine market with industry leader GE Aircraft Engines, a unit of General Electric (GE: Research, Estimates), and third-ranked Pratt & Whitney, a unit of United Technologies (UT: Research, Estimates).
While jet orders reached record levels last year, falling profitability among airlines has forced airframe and engine manufacturers to assume more of the burden of financing orders.
Rolls is also the world's largest manufacturer of marine engines following its acquisition of Britain's Vickers last year. Excluding Vickers, sales rose 6 percent to 2.104 billion pounds last year.
Civil aerospace sales rose 19 percent and operating earnings grew 29 percent. Rolls delivered a record 1,080 engines last year and posted a 9 percent advance in more lucrative sales of spares. Financing requirements often see engines sold at a loss, with engine makers earning more profit by the sale of spare parts over the life of the engine. 
-- from staff and wire reports
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Rolls-Royce
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