Canadian Manufacturing

Engine trouble: Rolls Royce shares plunge as profit warning shocks investors

Weaker aerospace demand leads company into significant headwinds

LONDON—Rolls-Royce shares plunged 18 per cent as the maker of plane engines warned weaker demand would hit profits.

Shares fell in trading Thursday to 121.50 pence after Rolls CEO Warren East described the outlook for 2016 as “very challenging.” East described the speed and magnitude of change as being significant and shows how “sensitive” parts of the business are to market conditions.

Rolls says profits would be hit by 650 million pounds ($986 million) of “headwinds.” The company flagged “sharply weaker demand” in selected aerospace and offshore marine markets.

A new cost savings program of between 150 million pounds to 200 million pounds will be put in place for 2016.

Keith Bowman of Hargreaves Lansdown, says Rolls’ “prior push to reduce earnings volatility and surprises” appears to have been “completely unwound.”

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