Rolls-Royce shares rocketed to a fresh all-time record high on Thursday as the group reported a bumper first half and increased its profit guidance for the full year.
Rolls-Royce delivered a stellar first-half performance, with underlying operating profit surging 50% to £1.7bn despite ongoing supply chain headwinds and tariff pressures.
The British aerospace and defence giant raised its full-year guidance, now expecting underlying operating profit of £3.1bn-£3.2bn. Free cash flow guidance was also lifted to £3.0bn-£3.1bn.
“Rolls-Royce continues to soar above expectations, delivering yet another set of high-flying results and profit guidance upgrades. The group produces aeroplane engines for larger, long-haul planes. Revenues are being boosted by the upward trend in engine-flying hours, which are now cruising well above pre-pandemic levels,” said Aarin Chiekrie, equity analyst, Hargreaves Lansdown.
“But that’s just one part of the puzzle. Layoffs, contract renegotiations, process changes, and increased use of data to drive efficiencies have put Rolls on a much healthier platform. As a result, margins have moved much higher, helping to convert the increased flying hours and revenue into profits.”
Operating margins climbed sharply to 19.1% from 14.0% in the prior year.
Civil Aerospace led the charge with margins reaching 24.9%, driven by robust aftermarket performance and improved contractual terms. Power Systems margins jumped to 15.3% as data centre demand accelerated.
Free cash flow strengthened to £1.6bn, bolstered by higher profits and continued growth in long-term service agreements. The company’s net cash position improved by £609m to £1.1bn.
Shareholders will receive an interim dividend of 4.5p per share in September. Rolls-Royce has completed £0.4bn of its planned £1bn share buyback programme, with total shareholder returns expected to reach £1.9bn through 2025 including dividends.
The engineering group said it expects to fully offset announced tariffs through mitigating actions, whilst monitoring broader economic impacts.
Rolls-Royce shares were trading up 10% at 1,095p at the time of writing.
“Rolls-Royce’s near tenfold rally since early 2023 reflects strong execution, rising profits and growing cash returns,” explained Chris Beauchamp, Chief Market Analyst at IG.
“Civil Aerospace is delivering, Power Systems is expanding fast, and Defence, which IG clients continue to expect to do well, remains a steady contributor. With SMRs offering long-term upside and cash delivery on track, the re-rating may still have legs.”