Rolls-Royce Is Trying To Make The Journey To Profit A Bit Smoother

Rolls-Royce Is Trying To Make The Journey To Profit A Bit Smoother
Stéphane Renevier, CFA

about 2 months ago2 mins

What’s going on here?

British jet engine maker Rolls-Royce announced that it will cut up to 2,500 jobs, an effort to make the journey to profit a little smoother.

What does this mean?

Rolls-Royce got a new CEO back in January, one that swiftly labeled the company a “burning platform” and revamped the top management roles before the fresh nameplate had even hit the desk. And now, 2,000 to 2,500 jobs – around 6% of the firm’s workers – are on the chopping block, a bid to cut costs and turn hard-earned revenue into profit. That type of management won’t win you any friends, but it might pay off elsewhere: Rolls-Royce’s stock has revved up 200% over the past year, claiming the title of the FTSE’s best performer. Plus, after news of the job cuts made the rounds, investors sent the stock up another 2%.

Rolls-Royce stock
Source: Google Finance

Why should I care?

For markets: Rolls-Royce is flying.

Rolls-Royce has also been gassed up by some factors outside of its control. Countries are bumping up their defense budgets in the face of bubbling geopolitical tensions and long-haul flights are getting booked up fast, both of which have drummed up demand for Rolls-Royce airplane engines and maintenance. That said, strict decision-making has clearly paid off for the firm. After all, shares in businesses with their act together – robust cost management, operational efficiency, and long-term strategies – tend to fetch a premium when the wider environment is uncertain.

The bigger picture: Cross your fingers.

Job cuts are a blow for individuals, but in this case, they also suggest that the burning hot job market – a contributor to inflation – could be cooling down. And this trend is spreading across the UK: wages are still rising in the country, but at a slower pace. The differences are small, but any momentum in the right direction could give the Bank of England enough reassurance to avoid hiking interest rates any higher when it meets next month.

UK private sector pay


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