Rolls-Royce Holdings (LON:RR) stock price retreated by more than 2% on Tuesday after the latest General Electric (NYSE:GE) results. The shares pulled back to 302p, a few points below its all-time high of 312.7p. GE stock retreated by more than 8% in the pre-market session.
Like General Electric, Rolls-Royce is a leading player in the civil aviation industry, where it makes engines mostly for wide body aircraft. The two companies are also huge players in the defence industry, where they manufacture engines for the military. Therefore, earnings from GE tend to have an impact on Rolls-Royce and other engine manufacturers like Safran (EPA:SAF) and RTX.
Rolls-Royce’s share price dropped after General Electric issued a weak forward guidance even after having a strong quarter. Its revenue jumped by 15% to over $19.4 billion, higher than the median estimate of $17.55 billion. Its profits were also better than expected, with the adjusted EPS coming in at $1.03 compared to the estimated $0.90.
However, the company warned that its aerospace division will have adjusted revenue will grow by low double-digits. Analysts were expecting that the division will have higher growth metrics because of the booming aviation sector.
Rolls-Royce stock also wavered after analysts at Berenberg downgraded it last week. In their note, the analysts warned that the company will likely have thinner margins in the coming months as the cost of doing business rise. They also highlighted the challenges in its XWB-97 engine. Analysts at UBS also downgraded their outlook for the stock.
Still, Rolls-Royce is entering this year with a few tailwinds that could push its stock higher in the coming months. For example, there is still elevated demand for aviation while the crisis in the Middle East has not caused jet fuel prices to surge.
The company also has high demand in its defense segment as geopolitical risks continue. For example, it is an important part of the AUKUS deal that will see the UK, US, and Australia spend billions building nuclear submarines. Rolls-Royce will publish its full-year results on February 22nd.