The aerospace engineer delivered a solid second half, but 2026 profit guidance came in below what the market was pricing in, and investors sold first
Melrose Industries PLC (LSE:MRO, OTC:MLSPF) fell sharply on Friday morning, with shares down 12% to 564p, after the company posted results that were broadly in line but guided for 2026 profits at the lower end of analyst expectations.
The numbers that mattered
Second-half EBIT came in 1% ahead of estimates at £337m, while free cash flow was the standout figure, beating consensus by 18% at £179m. For the full year, FCF reached £125m, clearing the £100m threshold that analysts at Peel Hunt describe as an important benchmark.
But the cash flow beat carries an asterisk. Receivable factoring contributed roughly £59m to the result, with the balance sheet value rising from £338m to £396m. UBS, which rates the stock a sell with a 430p price target, notes that investors may look through this when assessing the underlying performance.
Where the guidance fell short
The 2026 EBIT guidance range of £700m to £750m compares with a prior consensus of around £754m. The gap is modest, but it was enough to shift sentiment.
The split between divisions tells the story. Engines is performing well, with guidance of £565m to £595m sitting broadly in line with expectations. Airframes, the rebranded Structures division, is the soft spot, guided at £170m to £190m against a consensus of £210m. Management pointed to lower business jet volumes and productivity issues at a Dutch manufacturing site in the second half.
The bull and bear case
Peel Hunt keeps its 'buy' rating and 830p target, arguing that Melrose trades at roughly 11 times 2026 EBITDA against global aerospace peers on 14 to 15 times. The company also announced a £175m buyback, which provides some support.
UBS sees it differently with a 'sell' call. With its 430p target implying 32% further downside from Thursday's close, the bank views expectations as having been balanced into the print, with little to drive a re-rating higher.
The £175m buyback and unchanged 2029 guidance may limit the damage. Whether that steadies the ship depends on how quickly Airframes can recover.