Rolls-Royce Holding PLC (LSE:RR.) (1.0%) (RR - $18.29 - U.K.-LONDON) provides jet engines, power and propulsion systems, and services to commercial aviation, defense, marine, oil and gas, and other industries. RR has leading engine positions as the sole supplier on the Airbus A350 and one of two suppliers on the Boeing 787 Dreamliner, two new wide body programs with healthy backlogs to be delivered over the next decade. A re-engining of the A330 could extend one of Rolls’ most profitable engine programs. Engine deliveries lead to recurring, higher margin parts and service revenues, which benefit the company more than twenty years after new engines are delivered. In year-end 2013 results, Rolls-Royce surprised investors with 2014 guidance that called for a marked falloff in defense revenues and slower than expected improvement in civil aerospace margins. Notwithstanding near-term headwinds, we believe that over the next decade RR will see substantial growth in its civil aerospace operations, accompanied by improved margins approaching the levels of its peers. Recent portfolio changes have been positive, including the announced two billion GBP acquisition of Daimler’s 50% interest in Rolls-Royce Power Systems and the one billion sale of the energy aero-derivative gas turbine business to Siemens. The company’s modest debt levels provide balance sheet optionality for additional investments.
From Mario Gabelli (Trades, Portfolio)’s The Gabelli Asset Fund Second Quarter 2014 Shareholder Commentary.
