Melrose Industries Plc: Strong Earnings Amid Challenges

Melrose Industries Plc ((GB:MRO)) has held its Q4 earnings call. Read on for the main highlights of the call.

Melrose Industries Plc’s recent earnings call painted a picture of robust performance in certain divisions, particularly Engines, while acknowledging challenges such as supply chain issues and FX headwinds. The company expressed confidence in overcoming these hurdles, with ambitious five-year targets set to drive future growth.

Profit Growth in Engines Division

The Engines division was a standout performer, achieving a remarkable 26% revenue growth. Aftermarket revenue surged by 32%, and operating profit climbed 40% to £422 million. Impressively, margins reached 28.9%, surpassing the 2025 target of 28% a year ahead of schedule.

Overall Revenue and Profit Increase

Melrose Industries recorded an 11% increase in group revenue on a like-for-like basis, largely driven by the Engines division. Operating profit soared by 42% to £540 million, while earnings per share (EPS) rose by 45% to 26.4p, reflecting the company’s strong financial performance.

Reduction in Lost Time Accidents

A significant improvement in workplace safety was highlighted, with an 80% reduction in lost time accidents achieved in 2024. This marks a major step forward in the company’s commitment to safety and operational excellence.

Substantial Free Cash Flow Expected

Looking ahead to 2025, Melrose anticipates generating over £100 million in positive free cash flow post-interest and tax. This expectation signals an inflection point for the company, underscoring its financial health and strategic direction.

Five-Year Targets for Revenue and Margin Expansion

The company has set ambitious five-year targets, aiming for high single-digit compound annual growth rate (CAGR) in revenue, reaching £5 billion by 2029. Operating margins are expected to expand to over 24%, indicating a strong growth trajectory.

Successful Portfolio Rationalization

Melrose completed the sale of three non-core businesses, including two to Boeing, as part of its portfolio rationalization strategy. This move is expected to streamline operations and focus on core areas of growth.

Growth in Defense Sector

The defense sector showed promising growth, with revenue increasing by 7%. The company secured customer investment to double the production capacity of F-35 Canopies, highlighting its strategic focus on defense.

Supply Chain Challenges

Ongoing supply chain issues have impacted revenue, particularly in the Structures division, leading to lower-than-expected growth. The company is actively working to mitigate these challenges to sustain its growth momentum.

FX Headwinds

Despite strong performances across divisions, an FX headwind of approximately £10 million affected the overall operating profit. The company continues to navigate these currency fluctuations to maintain profitability.

Tariffs Impact

Higher tariffs on imports into the U.S.A. from Mexico pose potential risks, although the full impact remains unclear. Melrose is monitoring the situation closely to adapt its strategies accordingly.

Delayed Civil Ramp-up

Challenges in the civil ramp-up due to customer destocking and rate changes have constrained growth in the Structures division. The company is addressing these issues to enhance its production capabilities.

Forward-Looking Guidance

Melrose Industries provided forward-looking guidance, projecting revenue between £3,550 million and £3,700 million for 2025, with operating profit expected to range from £680 million to £720 million. The company aims for a high single-digit CAGR in revenue, targeting £5 billion by 2029, with operating margins exceeding 24% and free cash flow of £600 million post interest and tax. These targets reflect a strategic focus on growth and profitability.

In conclusion, Melrose Industries Plc’s earnings call highlighted a strong performance in key divisions, particularly Engines, while acknowledging challenges such as supply chain disruptions and FX headwinds. The company remains optimistic about its future, with ambitious targets set to drive growth and profitability over the next five years.