Rolls-Royce Holding plc (1.1%) (LSE:RR)(RR – GBX 1,074.00 - London Stock Exchange) provides jet engines, power and propulsion systems, and services to commercial aviation, defense, marine, oil and gas, and other industries. RR has leading engine positions as one of two suppliers on the Boeing 787 Dreamliner and the Airbus A350, two new wide body programs that will provide the company with significant long term growth opportunities. The delivery of new jet engines also provides recurring, higher margin parts and service revenues which will benefit the company. During year-end 2013 results, Rolls-Royce surprised investors with 2014 guidance that called for a marked falloff in defense revenues due to program completions and what it described as well publicized cuts by two of its major customers. Civil aerospace margins will also be slower to improve than most had expected. Notwithstanding near term headwinds, we believe RR over the next decade will see substantial growth in its civil aerospace operations, accompanied by improved margins approaching the levels of its peers. The company's modest debt levels provide balance sheet optionality for acquisitions or other investments. Currently RR is set to acquire Daimler's 50% interest in Rolls-Royce Power Systems at a contractually set price, which could be quite accretive to earnings.
From Mario Gabelli (Trades, Portfolio)'s Gabelli Asset Fund's first quarter 2014 shareholder commentary.
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