Rolls-Royce Holdings PLC (LSE:RR.) shares revved higher on Thursday morning after the engine maker raised its full-year guidance after first-half operating profit jumped 46% thanks to improved margins across all three divisions.
Underlying operating profit increased to £2.5 billion from £1.7 billion a year earlier on revenue up 25% to £11.3 billion. Operating profit margins widened to 22.5% from 19.1%.
The FTSE 100 group now expects underlying operating profit of £4.7-4.9 billion for the full year, alongside free cash flow of £3.8 -4 billion, despite disruption from the conflict in the Middle East.
Free cash flow increased to £2 billion in the first half from £1.6 billion a year ago, helping net cash reach £2.1 billion at the end of June, up from £1.9 billion at the end of December.
Civil Aerospace's operating margin increased to 25.3% from 24.9%, helped by improved profitability from long-term service agreements and engine maintenance. Defence's margin rose to 21% from 15.4%, while Power Systems improved to 20.3% from 15.3% following stronger demand from data centres and government customers.
Chief executive Tufan Erginbilgic said: "Our transformation continues to deliver, and we are demonstrating that Rolls-Royce is now a very different company to that of the past."
He added that the company had "effectively eliminated aircraft on ground", easing disruption for airline customers.
The board declared an interim dividend of 6p a share, up from 4.5p. So far, £1.4 billion of shares have been purchased under its planned £2.5 billion share buyback for the year.
Shares were up 5.2% to 1,451p, not far off all-time highs.
Broker Jefferies said the results represented "a stellar performance", with sales 11% ahead of consensus and operating profit 38% ahead.
Profits were "a major beat across all divisions", with 25-47% beats at individual divisional levels, driven both by strong sales and "meaningful margin uplift" across all divisions.
The broker noted that new operating profit guidance was 14% above the City consensus at the mid-point, with cash flow 2% above.
Analysts at Hargreaves Lansdown said that despite the Middle East conflict, demand for Rolls' aircraft engines "hasn’t let up" and its Power Systems division was "continuing to benefit from strong data centre demand as customers scramble for power sources while awaiting grid connections.
"These can often take years, so in the meantime, Rolls-Royce’s on-site power generation systems look well-positioned to benefit over the near-to-medium term."
They said the "scale of the transformation shouldn’t be overlooked", with Rolls now "a very different company from that of the past", with the portfolio streamlined, operations more efficient, and all three businesses benefitting from structural growth opportunities.
"Rolls-Royce is developing a growing track record of outperformance, and there looks to be plenty of runway left for further progress."
** UPDATE: Adds share price and broker comment **
