MTU Earnings: Adjusted Results in Line With Our Expectations

Wide-moat MTU Aero Engines MTX confirmed full-year guidance despite headwinds related to new issues with the performance of geared turbofan engines. We maintain our fair value estimate on the back of management’s preliminary assessment that these new issues will have a limited impact on EBIT and cash flow, but we have growing concerns about reputational costs affecting future share on Airbus’ A320neo.

In early September, Pratt & Whitney announced an enhanced GTF inspection program, with limited operational and financial impact on MTU. Collaboration with Pratt & Whitney aims to increase maintenance, repair and overhaul, or MRO, capacity and manage shop visits efficiently. The GTF inspection program significantly affected reported revenue and EBIT numbers, leading to a total impact on revenues and EBIT of slightly above $1 billion.

Looking at the adjusted figures, excluding the one-off inspection program costs, in the first nine months of 2023, adjusted group revenues increased by 21% to EUR 4.6 billion, with growth supported by all business segments. Adjusted EBIT increased by 33% to nearly EUR 600 million, and adjusted net income was up 37% to EUR 438 million. Free cash flow increased by 70% to EUR 25.7 million.

Adjusted original equipment manufacturer revenues increased by 26%, with strong performance in military and commercial business. Original equipment sales were up around 30%, driven by higher installed GTF engines and business jet engines. Organic spare parts sales increased in the 20% range. Reported MRO revenues increased by 18% to EUR 3.1 billion, with GTF MRO growth driven by ramp-up of MTU Maintenance Zhuhai and EME Aero. The GTF MRO share was roughly 35%, and the adjusted EBIT margin in the MRO business was 7.2%, compared with 7.4% in the prior-year period.