Melrose shares up as revenue grows 7%, driven by strong Engines division

Investing.com — Shares of Melrose (LON:) Industries Plc jumped on Monday after the company reported a 7% increase in revenue for the four months from July to October 2024, compared to the same period last year. 

At 4:14 am (0914 GMT), Melrose was trading 9% higher at £533.

The company said that the growth was driven largely by its Engines division, which reported a robust 17% increase in revenue, bolstered by strong aftermarket business, particularly in the defense sector. 

Despite challenges in the original equipment side of the business, the Engines division’s continued strong performance in aftermarket services played a crucial role in Melrose’s overall revenue growth.

The Structures division, on the other hand, reported more modest growth of 1%. 

This was primarily due to planned exits from non-core activities, customer destocking, and broader industry-wide supply chain disruptions that impacted OE production rates. 

However, the company noted that it continues to make progress in restructuring and cost-saving initiatives, with plans for substantial reductions in cash spending in 2025 as these programs near completion.

Melrose’s adjusted operating profit also showed continued growth, in line with the company’s expectations. 

The group remains confident in its full-year outlook, with expectations for adjusted operating profit in the range of £550 million to £570 million. 

This steady performance comes despite the ongoing supply chain difficulties affecting the broader industry.

Going forward, Melrose’s outlook for 2025 is positive. While the supply chain challenges are expected to persist, the company anticipates strong trading progress, with an adjusted operating profit target of £700 million for the year. 

The expected growth is again expected to be driven by the strong aftermarket performance in the Engines division, which is likely to offset the ongoing constraints in OE volume.

Melrose also indicated that its cash flow position would significantly improve in 2025, with substantial free cash flow anticipated post interest and tax. 

The completion of restructuring programs, resolution of specific operational issues, and the ongoing profitability of the group are expected to drive this growth. 

The company plans to provide more detailed longer-term financial targets beyond 2025 during its full-year results on 6 March 2025.

“As we move into 2025, we enter a period of significant and sustained growth in our cash flow for many years ahead,” said Peter Dilnot, chief executive at Melrose.

The company has also reiterated that its outlook for the year remains unchanged, with full-year expectations intact despite the ongoing supply chain challenges.

“FY outlook reaffirmed on solid profit performance – comments around 2025 cash flow and longer term forecast to be provided in March point to a supportive progression in the equity story,” said analyst at RBC Capital Markets in a note.