Melrose Industries Sees Revenue Growth

Shares of Melrose Industries Plc (LON:MRON) surged on Monday, following a report of a 7% revenue increase during the four months from July to October 2024, compared to the same period last year.

At 4:14 am (0914 GMT), Melrose's stock rose 9% to £533.

Drivers of Growth

The revenue growth was primarily attributed to the Engines division, which experienced a strong 17% revenue increase, heavily supported by robust aftermarket business, especially in the defense sector. Despite facing challenges in the original equipment side of the business, the ongoing success in aftermarket services was vital for Melrose’s overall revenue growth.

Conversely, the Structures division saw modest growth of just 1%. This subdued performance was due to a strategic withdrawal from non-core activities, customer destocking, and wider industry-wide supply chain disruptions affecting original equipment production rates.

Financial Outlook

Melrose noted steady progress in its restructuring and cost-saving initiatives, with plans to significantly reduce cash spending in 2025 as these programs approach completion. The adjusted operating profit showed continued growth as anticipated.

Full-Year Expectations

The group is confident in its full-year outlook, predicting an adjusted operating profit in the range of £550 million to £570 million. This consistent performance occurs despite ongoing supply chain challenges impacting the sector.

Looking ahead to 2025, Melrose maintains a positive outlook, anticipating strong trading progress with an adjusted operating profit target of £700 million. The anticipated growth is expected to arise from the Engines division's aftermarket performance, counterbalancing constraints in original equipment volume.

The company also expects a significant improvement in cash flow, with considerable free cash flow projected post-interest and tax. Growth will be driven by successful restructuring, resolution of operational issues, and the group’s ongoing profitability.

Future Projections

Melrose plans to disclose more detailed long-term financial targets beyond 2025 during its full-year results announcement on March 6, 2025. CEO Peter Dilnot stated, "As we move into 2025, we enter a period of significant and sustained growth in our cash flow for many years ahead."

The company's outlook remains unchanged for the current year, with full-year expectations intact despite the persistent supply chain challenges. RBC Capital Markets analysts indicated, "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."