The Rolls-Royce (LSE:RR) share price crashed by nearly 15% this morning after management released its full-year results for 2021. What was in this report that has investors so freaked out? And should I be steering clear of this business or use today’s collapse as a buying opportunity for my portfolio? Let’s explore.
Rolls-Royce share price volatility
Despite what the Rolls-Royce share price would indicate, the latest results were actually pretty encouraging, in my opinion. After being decimated by the pandemic, the business has undergone some significant restructuring to cut costs. And it seems those efforts are paying off.
So far, £1.3bn of annualised savings have been achieved a year ahead of schedule. Even though revenue continued to suffer by around 2%, due to pandemic-related disruptions, these reduced costs enabled the group to eke out a tiny profit of £124m. By comparison, in 2020, Rolls-Royce reported a massive loss of £3.1bn! That’s quite the improvement.
While free cash flow remains in the red at around minus £1.5bn, this is drastically better than the minus £4.3bn seen in 2020. Overall, this business still has a long way to go on its road to recovery. However, I think it’s fair to say things are moving in the right direction. So the question is, why did the Rolls-Royce share price crash on what was seemingly a favourable report?
Potential trouble ahead
Despite these impressive figures, the news was overshadowed by another announcement. After eight years of running the show as CEO, Warren East has announced he will be stepping down from his position at the end of 2022.
In my experience, seeing a captain abandon ship in the middle of a turnaround strategy is a troubling sight. This is often a move taken when a CEO doesn’t have faith in the business they are leading anymore. To be fair, there is no evidence of this, and it’s possible East could be simply wanting to move on to other things in his life.
However, even if this is the case, it still creates a pretty big distraction for the management team, which should be focused on bringing Rolls-Royce back to its former glory rather than finding a suitable successor in the middle of a storm. Therefore, I’m not surprised to see the Rolls-Royce share price take a nosedive today.
A buying opportunity?
My opinion of this business has substantially improved over the last few quarters. And on the back of these latest results, my opinion has improved further still. However, with a long road ahead, I’ve always thought there are better opportunities for my portfolio elsewhere. Today, my stance hasn’t changed.
Even if the Rolls-Royce share price is now cheap, the shake-up in leadership adds a lot of uncertainty, so I’m not interested in adding to my investments.
Should you invest £1,000 in Rolls-Royce right now?
Before you consider Rolls-Royce, you’ll want to hear this.
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Zaven Boyrazian has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
