Melrose Industries Shares Give Up Some Gains as Early Year Rally Takes Breath

Despite improved numbers across the board, Melrose Industries' share price (LON: MRO) has fallen sharply on the latest financial results, down 9.9% through the early hours of trading as markets reacted to a missed sales number. The company reported £1.73 billion in sales for the half year, short of the expected £1.82 billion that markets were looking for.

The company has made progress by completing three non-core disposals and advancing defence contract repricing, with 61% completed. Looking ahead, the company forecasts a revenue of between £3.55 billion to £3.70 billion and an adjusted operating profit of around £700 million for 2025. The revenue guidance falls short of the consensus of £3.76 billion expected, again applying some strain on sentiment that had driven the stock up 22% year-to-date leading into the release.

Expectations leading into the print were hot, as the initial reaction demonstrates. The company reported an 11% rise in revenue to £3.47 billion and a significant 38% increase in adjusted operating profit, reaching £566 million.

In addition to the operating profit, Melrose achieved a post-PLC cost operating profit increase of 42% to £540 million. Profit before tax also saw a notable increase of 36% to £438 million, demonstrating the company's effective cost management and operational efficiency.

Further indicators of financial health include a 45% growth in adjusted diluted earnings per share to 26.4p and a 20% increase in total dividend, reaching 6p per share. However, net debt rose to £1.32 billion from £572 million in 2023, which resulted in a leverage ratio of 1.9x.

On the cash flow front, free cash flow turned positive, generating £71 million in the second half after covering interest and tax expenses. This turnaround signifies Melrose's improved cash management capabilities.

The company also witnessed major achievements in its divisions. The Engines division saw a revenue climb of 26% to £1.46 billion, with an adjusted operating profit up 40% to £422 million. Meanwhile, the Structures division reported a modest revenue growth of 3% to £2.01 billion, achieving an adjusted operating profit of £144 million.

In alignment with its long-term vision, Melrose has set ambitious five-year targets, aiming for a revenue of £5 billion by 2029 and an adjusted operating profit exceeding £1.2 billion. These targets reflect the company's commitment to sustained growth and deliver value to its shareholders.

Melrose Industries financial results for 2024 are by and large very positive, with a marked improvement in revenue and profits, yet sentiment had already driven the stock to highs leading into the report. A strong start to 2025 is maintained even in spite of this morning's pullback, with MRO's share price holding on to more than 10% in gains through the first couple of months.