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Investing.com -- Shares of Melrose Industries (LON:MRON) rose more than 6% on Friday after the aerospace and defense firm reported first-half profit and cash flow ahead of expectations, even as it lowered its full-year guidance due to foreign exchange headwinds.
Adjusted operating profit rose 26% to £310 million for the six months ended June 30, topping consensus forecasts of £299 million.
Group revenue came in at £1.72 billion, down 1% from a year earlier and below the £1.75 billion estimate.
Free cash flow showed a year-over-year improvement of £91 million, with an outflow of £54 million compared to £145 million last year.
Operating margins improved to 18% from 14.2%. Earnings per share rose to 15.1p from 11.9p, exceeding consensus of 14.8p. Adjusted net income increased to £194 million from £160 million.
In the Engines division, revenue increased 11% to £781 million, slightly below expectations.
Adjusted operating profit rose to £261 million, up from £212 million, with a margin of 33.4%. Variable consideration accounted for 70% of the segment’s profit, down from 75% a year earlier.
“Albeit the variable consideration increased in absolute compared to last year, we note it continues to represent a lower portion in the division profitability, which implies an improvement of profitability quality in our view,” said analysts at Morgan Stanley (NYSE:MS) in a note
The Structures division saw revenue fall 7% to £939 million. However, adjusted operating profit rose to £63 million, up 32%, with margins improving to 6.7%.
Defense contracts, which make up 85% of the segment’s work, were reported to be sustainably priced. Civil aerospace performance remained flat.
Melrose maintained its full-year free cash flow target of more than £100 million but noted that approximately £150 million will be needed in the second half to meet the goal.
The improvement so far has been attributed to higher earnings and reduced restructuring costs.
Full-year revenue guidance was lowered to a range of £3.43 billion to £3.58 billion, down from £3.55 billion to £3.7 billion.
Adjusted operating profit is now expected between £620 million and £650 million, compared with a prior range of £650 million to £690 million.
The company cited a 7% movement in foreign exchange rates, with updated assumptions of GBP £1 = USD $1.335, as the reason for the downgrade.
Guidance for variable consideration was also reduced to £310 million to £340 million from £320 million to £360 million.
Melrose shares closed at 512p on Thursday and have traded between 376p and 707p over the past 12 months.
The company’s market capitalization stood at £6.7 billion, with projected net debt of £1.7 billion by year-end.