Shares of MTU Aero Engines Decline After Company Delays Increase in Returns to Shareholders
Shares of MTU Aero Engines declined on Thursday after the company announced that it would not be increasing returns to shareholders until 2026. This decision was made due to various issues, including problems related to Pratt & Whitney engines and investments in sites and technology which have impacted the company’s cash flow.
As of 0845 GMT, MTU Aero shares were down by 3.7% at EUR214.90. This is a drop from the stock’s price of EUR230.00 a year ago.
The German aircraft-engine manufacturer suffered a financial impact of approximately EUR1 billion following a recall of jet engines by Pratt & Whitney’s parent company RTX. The recall was due to a fault in the metal used in the engines, which could lead to cracking. MTU Aero supplies components for Pratt & Whitney’s geared-turbofan engines, which are used in aircraft such as Airbus’s A320neo.
MTU Aero expects the recall to affect its revenue and earnings before interest and taxes in 2023, with the majority of the liquidity impact to be felt between 2024 and 2026. However, the company remains committed to investing in sites and technology.
Due to these challenges, MTU Aero will face significant cash flow burdens, which will limit its ability to maintain dividend payments at current levels until 2024 to 2026. As a result, the company has suspended its target of increasing payout ratios to reach 40% of adjusted net income during this period.
MTU Aero has proposed a dividend of 2 euros per share for 2023, significantly lower than the EUR3.20 per share given in 2022. The executive board believes that this proposal strikes a balance between expected cash outflows and the company’s growth prospects.
Despite these challenges, MTU Aero anticipates growth across all market segments in 2023. The company projects revenue between EUR7.3 billion and EUR7.5 billion, an adjusted EBIT margin of more than 12%, and free cash flow in the low three-digit million euro range.
MTU Aero plans to announce its 2023 earnings on Feb. 29.
Disclaimer: This article is for informational purposes only and should not be taken as investment advice. The author of this article does not have a financial or vested interest in any of the securities mentioned. Always conduct your own research and consult with a licensed investment advisor before making an investment decision.
Analyst comment
The news is negative for MTU Aero Engines. The announcement that returns to shareholders will not increase until 2026, combined with the financial impact of the recall and cash flow burdens, caused a decline in the company’s shares. The market will likely continue to be affected in the short term as investors react to the news.
