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Investing.com -- Rolls-Royce (LON:RR) shares surged more than 10% on Thursday after the company raised its full-year profit guidance and reported a 50% increase in first-half operating earnings, driven by stronger margins and higher service volumes in Civil Aerospace and Power Systems.
Underlying operating profit rose to £1.7 billion for the six months ended June 30, up from £1.2 billion a year earlier.
Revenue increased 13% to £9.1 billion from £8.1 billion, while operating margin expanded to 19.1% from 14.0%. Free cash flow rose to £1.6 billion, up from £1.2 billion.
The company raised its full-year forecast to £3.1 billion to £3.2 billion in underlying operating profit, up from £2.7 billion to £2.9 billion previously.
Free cash flow is now expected between £3.0 billion and £3.1 billion, up from a prior range of £2.7 billion to £2.9 billion.
Civil Aerospace revenue grew 17% to £4.8 billion, with operating profit rising to £1.2 billion from £740 million.
The division’s operating margin increased to 24.9%, helped by 12% more shop visits and 8% higher engine flying hours.
Excluding catch-up adjustments, the company reported a 19.4% underlying EBIT margin for Civil Aerospace, a 600 basis point improvement from the prior year.
“While no reliable consensus is available for H1, we note a c. 40% beat to our EBIT forecasts, only partly driven by catch-ups in Civil which records a 600bps improvement excluding catch-ups yoy, already towards the top-end of its mid-term guide at 19.4% in H1,” said analysts at Jefferies in a note.
Rolls-Royce (OTC:RYCEY) delivered 237 engines during the period, including 122 large engines. Large engine flying hours reached 109% of 2019 levels. The company reported £288 million in net contractual margin improvements in the division.
Power Systems revenue rose 20% to £2.0 billion, while operating profit nearly doubled to £313 million from £166 million.
The division’s operating margin improved to 15.3% from 10.3%, supported by increased demand from data centers and government customers. Trading cash flow for the segment rose to £425 million from £121 million.
Defence reported flat revenue of £2.2 billion, with operating profit at £342 million, compared to £345 million a year earlier, which included a £180 million one-off benefit. Order intake for the division reached £4.0 billion, with a book-to-bill ratio of 1.8x.
Rolls-Royce expects a lower contribution in the second half due to reduced contract margin benefits, increased original equipment deliveries and higher maintenance investment.
Original equipment deliveries are forecast at the low end of the 540 to 570 unit range. Flying hours are expected at 110% to 115% of 2019 levels, with 1,400 to 1,500 shop visits.
Long-term service agreement creditor growth is projected at the lower end of the £0.8 billion to £1.2 billion range.
Supply chain costs are expected to reduce free cash flow by £150 million to £200 million, but tariff impacts are expected to be fully offset.
Net cash increased to £1.1 billion, up from £475 million at the end of 2024. The company declared an interim dividend of 4.5p per share and completed £400 million of its planned £1 billion share buyback.