Key facts
- Rolls-Royce and BAE Systems have raised their profit forecasts.
- Rolls-Royce now expects underlying operating profit between £4.7bn and £4.9bn.
- Rolls-Royce increased its free cashflow forecast to £3.8bn-£4bn.
- BAE Systems anticipates earnings growth of 10% to 12%.
- Both companies attribute the improved outlook to increased government defense spending.
Rolls-Royce and BAE Systems have both upgraded their profit forecasts, signaling a significant boost for defense firms as governments worldwide increase investment in military capabilities.
Rolls-Royce, which produces jet engines, marine turbines, and small nuclear power plants, raised its forecast for underlying operating profit to between £4.7bn and £4.9bn, up from a previous range of £4bn-£4.2bn. The company also increased its free cashflow projection to £3.8bn-£4bn. The jump in defense spending, particularly since Russia's invasion of Ukraine in 2022, has benefited Rolls-Royce. Additionally, its civil aerospace division has seen strong demand as long-haul travel recovers post-pandemic, and its power generation unit is benefiting from data center demand driven by AI companies. The company anticipates further benefits from commitments made at the recent Nato summit, including for systems that use its engines.
Chief executive Tufan Erginbilgiç stated that the company's transformation is yielding results, with progress in civil aerospace and defense, particularly in autonomous propulsion. Shares in Rolls-Royce saw a 5.5% increase on Thursday morning, making it the top performer on the FTSE 100.
Similarly, BAE Systems reported that sustained increases in global defense budgets have led to an upgrade in its profit forecasts, now expecting earnings to rise by 10% to 12%, an increase from the prior 9% to 11% estimate. BAE Systems, a major supplier of weapons including tanks, fighter jets, and munitions, has seen demand rise from the US and other export markets. The company cited contracts for Typhoon aircraft support for Turkey and an acceleration of production for interceptor missile components for the US. It also holds a £5.9bn contract with the British government for a nuclear deterrent submarine.
BAE chief executive Charles Woodburn noted the volatile global threat landscape and governments' response with increased defense budgets, positioning the company for long-term growth through execution, geographic diversity, and technological investment.