2nd May 2024 10:15
(Alliance News) - Melrose Industries PLC on Thursday backed its recently upped guidance, as its Engines arm powered the aerospace firm to a strong first-quarter.
In a first quarter trading update to March 31, Melrose said revenue was up 8% from a year before, with Engines showing strong progress, up 21%, and Structures flat, as expected.
Ongoing restructuring projects and business improvement actions are progressing well, Melrose said.
"As a result, adjusted operating profit is up substantially on the prior year, in line with our expectations and recently upgraded guidance," it said.
Melrose expects full year adjusted operating profit to increase by 33% to GBP560 million from the year before. In 2023, adjusted operating profit was GBP420 million. Melrose had previously increased guidance alongside annual results in March.
Melrose said end markets continue to be "positive with strong demand," and highlighted "increasing" backlogs in both civil and defence, and favourable Engines aftermarket dynamics.
Chief Executive Peter Dilnot said: "We have had a strong start to the year with a particularly good performance from our Engines division. We expect this momentum to continue throughout the year. Longer term, the group is well positioned to deliver ongoing growth and margin expansion supported by positive end markets and excellent business improvement momentum. We are confident about unlocking significant further potential in the years ahead."
In Engines, Melrose said the strong performance was driven by aftermarket with repair activities growing above the divisional average. Engine volumes continue to increase, albeit they are still constrained by industry-wide supply chain issues. Given the higher profitability of aftermarket, the resulting business mix is generating strong margins, in line with previous guidance, it said.
In Structures, the flat reported revenue, as expected, reflects the planned exit of non-core work and destocking by a major customer as highlighted before.
"The division is making encouraging progress from business improvement actions, with the majority of benefits expected in the second half and into 2025," Melrose remarked.
Peel Hunt analyst Harry Philips complemented the Melrose statement for being "straightforward". The broker's full year adjusted operating profit prediction for Melrose stands at GBP570 million, GBP10 million above what the firm itself predicts.
"There is plenty of momentum and plenty to like," Philips added.
Peel rates the stock at 'buy' and has a 700 pence price target.
Melrose shares traded 1.8% lower at 609.80p each in London on Thursday morning. It has surged just under 50% over the past 12 months, however.
By Eric Cunha, Alliance News news editor
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