Rolls Royce 2022 earnings preview: Where next for the Rolls Royce share price?

When will Rolls Royce report 2022 earnings?

Rolls Royce is scheduled to release annual 2022 earnings on the morning of Thursday February 23.

Rolls Royce 2022 earnings consensus

Annual underlying revenue is expected to be up around 7% in 2022 and analysts are looking for underlying operating profit, its headline measure, of £489.1 million, up 18% from the year before. 

Rolls Royce 2022 earnings preview

It will be a big week for Rolls Royce.

CEO Tufan Erginbilgic informed employees last month that the company must change the way it works because its current performance is ‘unsustainable’, according to the Financial Times. ‘Every investment we make, we destroy value,’ he told staff, adding that ‘we underperform every key competitor out there’. The boss described the company as a ‘burning platform’ and is thought to have launched a transformation programme.

Erginbilgic, who spent two decades at oil giant BP, took over as the boss of Rolls Royce at the beginning of 2023, tasked with the job of getting the business back on track after being decimated by the pandemic, which grounded flights and wiped-out the money it earns from the amount of time its engines are in the sky and lowered overall demand. His predecessor, Warren East, launched a restructuring plan that has cut jobs and lowered debt, but Erginbilgic still has a big job to do to get Rolls Royce back to its former glory.

The plan to address these problems is set to be unveiled this week. The fact it has a UK and US investor roadshows pencilled-in for March, when it will hold a series of meetings with shareholders, supports the view it could have a new message to get across. The big question is about how forceful and ambitious the new CEO will be. There is scope for everything from more cost-cutting, job cuts and even disposals, but there are questions about whether this will end up being a huge shake-up of the 117-year-old company or just another to add to the long list of restructurings that Rolls Royce has undergone in recent decades. His language suggests he understands the gravity of the situation and isn’t afraid to be bold.

‘Given everything I know talking to investors, this is our last chance’, Erginbilgic said.

Rolls Royce’s performance is heavily tied to that of the commercial airline industry, which is still recovering from the pandemic. Passenger numbers continue to climb but they are still way below pre-pandemic levels. Airlines have countered this with higher prices, which has finally allowed them to return to profit, but they are ultimately flying fewer planes and so Rolls Royce has had a slower recovery, particularly as long-haul travel has taken even longer to rebound.

But Erginbilgic believes the problems run deeper and can’t be blamed on the pandemic. ‘Rolls Royce has not been performing for a long, long time, it has nothing to do with Covid, let’s be very clear. Covid created a crisis, but the issue in hand has nothing to do with it,’ he told staff. Its commercial aerospace division, which usually generates over half of all revenue in normal times, reported losses throughout 2017 and 2018, so it was already in trouble before the Covid-19 crisis erupted. The reopening of China provides hope that 2023 will lead to its engines being used more this year, but we could see Erginbilgic rebalance the way it makes money from its engines as part of the shake-up.

Erginbilgic has made it clear that Rolls Royce needs to become more competitive and have a sharper focus on profitability. Rolls Royce is forecast to eek out free cashflow of £96 million in 2022 after burning through cash over the past two years, but it still has around £4 billion worth of debt on the balance sheet, twice the amount of cash it has in the bank. Cashflow is set to significantly improve in 2023, but investors hope that current market expectations could be conservative and that the sum could be higher if Erginbilgic delivers.

Rolls Royce shares have risen over 12% since the new chief executive took over, showing there is some optimism that Erginbilgic can propel Rolls Royce into a new era, helped along the way by the ongoing recovery in air travel. Still, there is a long way to go considering the stock is still worth less than half what it was before Covid-19 derailed the share price back in February 2020.

Where next for the RR share price?

Rolls Royce, which is one of the most popular UK stocks and has been the 13^th most traded equity among StoneX Retail clients since the start of 2023, has risen over 12% since the start of the year and has been following a rising uptrend that can be traced back over four months ago.

While the uptrend is still intact, Rolls Royce shares have found some resistance at 113.8p, having tried and failed to break above here twice in the last month. It could struggle to find higher ground considering we have also seen some bearish divergence from the RSI, which has fallen over the past six weeks while the share price has found higher ground. The 17 brokers that cover the stock add further fuel to that argument as they believe the recent rally has been overdone and that Rolls Royce is slightly overvalued with the average target price sat at 108.69p.

The stock can bring a move toward 128.50p, marking the ceiling we saw in March 2021 and again in January 2022, into view if it can regain some momentum.

There is room for the stock to fall further without breaking out of the uptrend, which is running parallel with the 50-day moving average at present. There are some signs that 107.50p could provide some support if the uptrend does falter. The 94.50p level should be treated as the ultimate floor over the short-term.

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