Defence giant maintains full-year guidance as global security spending rises, but investors take profits
BAE Systems (LON: BA.) shares fell sharply on Thursday, dropping 3.8% despite the defence and aerospace giant issuing an upbeat trading statement ahead of its Annual General Meeting, in what analysts are likely to interpret as a case of investors selling on the news after a strong recent run for the stock.
The FTSE 100 group reported a “strong start to 2026”, with its operational and financial performance in the first four months of the year described as robust, and full-year guidance left unchanged from its preliminary results announcement published on 18 February.
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Guidance Held Firm
BAE Systems reiterated expectations for strong growth across all key financial metrics in 2026. The company guided for sales growth of between 7% and 9%, with underlying earnings before interest and tax (EBIT) and underlying earnings per share (EPS) both forecast to grow between 9% and 11%. Free cash flow is expected to exceed £1.3bn for the full year, all on a constant currency basis using an average GBP:USD exchange rate of 1.32.
As a reference point, the company noted that a 5 cent movement in the pound-dollar exchange rate would impact sales by approximately £500m, underlying EBIT by around £70m, and underlying EPS by approximately 1.4p — a relevant caveat given ongoing currency volatility.
Chief Executive Charles Woodburn struck a confident tone, saying: “We’ve delivered a strong start to 2026, underpinning our full-year guidance. Our geographic breadth, proven multi-domain capabilities, and focus on operational excellence and innovation are enabling consistent delivery of critical programmes. We’re well positioned for both current and future opportunities in defence.”
Rising Defence Budgets Provide Tailwind
The company pointed to an increasingly favourable geopolitical backdrop as a key driver of its medium-term growth prospects.
With security threats continuing to grow around the world, BAE said governments across its key markets are accelerating defence spending, providing a supportive environment for a business whose portfolio spans space systems, missile and air defence, drones and counter-drone technology, electronic warfare, combat aircraft, armoured vehicles, frigates, and submarines.
Major Contract Wins
The trading update highlighted a series of significant contract awards already secured in 2026. In its Air division, BAE secured a contract worth approximately £2.5bn to provide training and support equipment for Turkey’s recently ordered Eurofighter Typhoon jets, alongside roughly £1.1bn of MBDA missile orders — including Aster, VL MICA and Mistral systems — from European customers.
In its Electronic Systems division, the Space & Mission Systems business received around $235m in incremental funding under the $1.2bn Epoch 2 missile warning and tracking satellite programme, as well as a $325m order under a restricted national space programme.
Meanwhile, the Platforms & Services division notched several significant awards. Bofors received a contract worth over $200m for ARCHER artillery systems and a further $180m contract for TRIDON Mk2 anti-aircraft systems for the Swedish Army.
The division’s Maritime Solutions unit also landed a US Navy contract worth over $200m to maintain and upgrade the USS Iwo Jima to support Joint Strike Fighter flight operations.
Buyback and Dividend Progress
On capital allocation, BAE confirmed that the 2025 final dividend of 22.8 pence per share will be paid to shareholders on 4 June 2026, subject to shareholder approval.
The company also revealed that as of 6 May it had repurchased £166m of shares so far this year, bringing the total of its three-year £1.5bn buyback programme — launched in July 2024 — to £930m completed.
Investor Reaction
Despite the broadly positive tone of Thursday’s update, the share price decline suggests some investors may have been expecting either an upgrade to guidance or more concrete news of additional contract wins.
BAE Systems’ shares have been among the strongest performers in the FTSE 100 over recent years, buoyed by elevated global defence spending, meaning the bar for positive surprises is now considerably higher.
BAE Systems is due to publish its half-year results for the six months ending 30 June 2026 on 30 July 2026.
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