MTU shareholders must initially brace for a lower dividend as the engine manufacturer will generate less profit due to an expensive material defect in the drives of many Airbus jets. According to a surprising announcement by the Munich-based company on Wednesday evening, the planned payout for 2023 is only 2 euros per share, down from 3.20 euros for the previous year.
The reason for the lower profit lies in the high costs of repairing the gearbox engines manufactured by MTU's US partner Pratt & Whitney (Raytheon Technologies). Therefore, CEO Lars Wagner plans to be more financially cautious in the coming years and save money. Nonetheless, he expects strong business growth in 2024.
The News was Negatively Received in the Financial Market in the Evening, as Reflected in the After-Hours Trading on the Tradegate Platform, Where MTU Shares Lost About Three and a Half Percent Compared to the Xetra Closing Price. Thus Far, MTU Had Promised to Continuously Increase the Payout Ratios and to Distribute 40 Percent of the Adjusted Annual Surplus as Dividends to Shareholders. However, for the Fiscal Years 2024 to 2026, This Target is Being Suspended in Order to Cover the Costs of Engine Repairs and Investments in Future Propulsion Technologies.
For the fiscal year 2024, management expects a significant increase in business. Sales are projected to rise to between 7.3 and 7.5 billion euros and the operating profit before interest, taxes, and special effects (adjusted EBIT) is expected to exceed 12 percent. Free cash flow is likely to be in the low hundred million euro range. Analysts are predicting an average revenue of 7.15 billion euros for the year 2024, along with an adjusted operating result of 901 million euros, based on company data. The official financial figures will be published as scheduled on February 29th.
When management announced its annual targets for 2023 at the end of October, it had not taken into account special effects such as the engine recall. Without these influences, revenue is expected to continue to rise to between 6.1 and 6.3 billion euros, and adjusted operating profit before interest and taxes is expected to increase to over 800 million euros. However, the operating result could record losses due to the burden of the engine recall.
The reason for the recall lies in a material defect during the production of turbine disks for the geared fan engines, in which Pratt & Whitney had used problematic metal powder. These types of propulsion are used in about half of the most sought-after Airbus SE (formerly EADS) model family A320neo, the smaller Airbus A220, and the E2 jets from the Brazilian manufacturer Embraer (Embraer SA). MTU produces parts for these drives and operates one of the three global final assembly lines. According to the parent company RTX, nearly all of the already delivered engines are affected by this issue. Therefore, many of these engines must be repaired shortly.
As a result, up to 650 Airbus jets are expected to remain grounded worldwide in the first half of 2024.
