Shares of MTU Aero Engines took a hit on Thursday as the company announced a disappointing outlook for shareholder returns up to 2026. The challenges related to Pratt & Whitney engines, along with ongoing investments in infrastructure and technology, are expected to put a strain on cash flow.

Stock Performance

At 0845 GMT, MTU Aero shares were down 3.7% at EUR214.90, a decrease from approximately EUR230.00 a year ago.

Impact of Pratt & Whitney Recall

Last year, the German aircraft-engine manufacturer faced a setback when Pratt & Whitney parent company RTX issued a recall for hundreds of jet engines. This recall was due to a metal fault that could result in cracking, affecting engines that power popular aircraft like Airbus's A320neo - engines for which MTU supplies critical components.

Forecasted Challenges

The repercussions of the engine recall are expected to impact revenue and earnings before interest and taxes in 2023, with the peak liquidity impact anticipated between 2024 and 2026. Meanwhile, MTU continues its strategic investments in facilities and technologies.

Outlook for Dividends

Citing the anticipated cash flow constraints, MTU announced a suspension in its ability to maintain dividend payouts at current levels from 2024 to 2026. As a result, the target of increasing payout ratios and achieving 40% of adjusted net income during this period will be put on hold.

Proposed Dividend for 2023

For 2023, MTU plans to propose a dividend of 2 euros ($2.16) per share, a decrease from the EUR3.20 per share paid out in 2022. The company's executive board considers this proposal a balanced approach considering the forecasted cash outflows and the organization's growth prospects.

Growth Expectations

Despite the challenges, MTU remains optimistic about growth across all market segments in the upcoming year. The company projects revenue ranging between EUR7.3 billion and EUR7.5 billion, an adjusted EBIT margin exceeding 12%, and free cash flow in the low three-digit million euro range.

Upcoming Earnings Report

MTU is scheduled to announce its 2023 earnings on Feb. 29, shedding more light on the company's financial performance moving forward.