Andy Chambers Comments: MTU Aero sees demand for new jets and strong dollar pushing up profit

February 12, 2015, Reuters

MUNICH, Feb 12 (Reuters) – Strong global demand for new passenger jets and a firmer U.S. dollar should help German aircraft engine maker MTU Aero Engines beat analysts’ average sales and profit forecasts this year, it said on Thursday.


Its two biggest customers, Airbus and Boeing , are riding a wave of orders for new fuel-efficient passenger jets, boosting business for suppliers. Airbus won net orders for 1,456 planes in 2014, against 1,432 for Boeing.


MTU Chief Executive Reiner Winkler said profit would also be boosted by the stronger dollar, as the firm does most of its business in the U.S. currency but reports results in euros.


The company, which also makes engines for Bombardier , expects its revenue and adjusted earnings before interest and tax (EBIT) to both rise by around 10 percent this year, to 4.4 billion euros ($5 billion) and 420 million euros respectively.


That beats the average analyst estimates in a Reuters poll for sales of 4.14 billion euros and adjusted EBIT of 405 million for 2015.


"These (forecasts) look very encouraging, especially as the benefit of a weaker euro is likely to take several years to fully kick in," Cantor Fitzgerald analyst Andy Chambers wrote in a note, adding he was putting his recommendation and target price for the stock under review.


A 10 cent change in the dollar/euro exchange rate translates into a 60-70 million euro impact on operating profit, Winkler said.


"It does have a significant effect on our operating profit," he added, even though the company is already 75 percent hedged for 2015. MTU’s 2015 guidance is based on an average exchange rate of $1.20 to the euro, compared with the current $1.13.


Shares in MTU, which had gained 20 percent over the last three months and were boosted earlier in the week by an Exane analyst upgrade on the stock, were down 3 percent at 1223 GMT.


While MTU is set to capitalise on global demand for jets, its new engines business is less lucrative than providing spare parts or maintenance due to the levels of investment required.


It said in November that group profit margins would rise from around 2018, when the spare parts and maintenance business from new engines comes through.


For the fourth quarter, MTU posted adjusted EBIT of 111.8 million euros, surpassing analyst expectations of 107 million.


It said it would make a dividend proposal for the 2014 business year on March 3.


($1 = 0.8815 euros)



(Editing by Harro ten Wolde and Pravin Char)