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Is Rolls Royce (RYCEY) Set to Miss Earnings This Season?

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Integrated power solutions provider to the civil and defense aerospace, marine and energy markets, Rolls Royce Holdings plc (RYCEY - Free Report) will release its first half 2014 financial results on Jul 31, 2014. Let’s see how things are shaping up for this announcement.

Factors Influencing This Quarter

Rolls Royce is the second largest aircraft engine producer after GE Aviation Systems, an operating unit of General Electric Company (GE - Free Report) . With growing commercial air passenger traffic, the company’s Aerospace division can further improve the profitability of its passenger jet engine business. Rolls Royce is also seeking new sources of growth.

The fast developing market for military drones will also generate revenues for Rolls Royce. The company supplies engines for Northrop Grumman Corp.’s Global Hawk, an unmanned surveillance aircraft.

As discussed above, Rolls Royce’s civil aerospace unit – the group’s largest revenue generator – stands to gain from increased production of passenger jets by the aerospace giants Airbus and The Boeing Co. (BA - Free Report) . The company is also manufacturing engines for a prototype unmanned combat aircraft that is being developed by a consortium led by BAE Systems.

In spite of the favorable commercial market Rolls Royce surprised investors with its outlook for flat revenue and profit growth this year. Moreover, considering the U.S. government’s tepid budget picture, it expects defense revenue and profit to fall up to 20%. The company expects to return to growth in 2015.

Also, the terminated Skymark Airlines order for six A380 planes would hit Rolls Royce’s order book by 0.5%. Airbus Group, the maker of the A380, had terminated a deal to deliver the jets to Skymark as the carrier was unable to raise enough funds to pay for the installments. Rolls-Royce was entitled to deliver the engines for the jets as well as provide maintenance services once operational.

Earnings Whispers?

Our proven model does not conclusively show that Rolls Royce is likely to beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank of #1, 2 or 3 for this to happen. That is not the case here as you will see below.

Zacks ESP:  The earning ESP stands at 0.00%.

Zacks Rank:  Rolls Royce has a Zacks Rank #4 (Sell) which lowers the predictive power of the ESP. We caution against stocks with a Zacks Rank #4 and 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions

Stocks That Warrant a Look

Here are some companies you may want to consider as our model shows that these have the right combination of elements:

Alliant Techsystems Inc. has an earnings ESP of +4.08% and carries a Zacks Rank #1 (Strong Buy).

Curtiss-Wright Corp. (CW - Free Report) has an earnings ESP of +1.28% and carries a Zacks Rank #2 (Buy).

Spirit AeroSystems Holdings, Inc. (SPR - Free Report) has an earnings ESP of +5.80% and carries a Zacks Rank #2 (Buy).

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