Melrose Industries Shares Plunge on Softer Revenue Guidance Amid Supply Chain Woes

Shares of Melrose Industries PLC (MRO.L) are taking a hit today after the company released its 2025 audited results alongside a weaker-than-expected revenue forecast for 2026.

The London-listed aerospace parts supplier anticipates revenue in the range of £3.75 billion to £3.95 billion ($5.05 billion-$5.32 billion) for the year.

This falls short of analysts' estimates, which had pegged revenue at £4.01 billion, according to data compiled by LSEG.

Markets reacted swiftly to the news, sending the stock more than 15% lower as investors digested the implications of persistent sector-wide supply chain constraints cited by the company.

Despite the disappointing outlook, Melrose reported a strong performance for 2025. Revenue grew by 8% to £3.589 billion, and adjusted operating profit surged by 23% to £647 million.

The adjusted operating margin also saw a significant improvement, increasing by 240 basis points to 18.0%.

Free cash flow generation marked a turning point for the Group, reaching £125 million, a substantial £199 million increase compared to 2024. The company also announced a new twelve-month share buyback program of £175 million and increased the final dividend to 4.8p, bringing the full-year dividend to 7.2p, a growth of 20%.

The Engines division, a key driver of growth, saw revenue increase by 15% to £1.632 billion, with both original equipment (OE) and aftermarket segments contributing significantly. Adjusted operating profit for the division jumped by 27% to £520 million, driven by top-line performance and a 300 basis points improvement in adjusted operating margin to 31.9%.

The Airframes division, now reflecting a broader portfolio, reported revenue growth of 3% on a like-for-like basis to £1.957 billion. The defense sector showed particular strength, with revenue growing by 15%. However, civil revenue experienced a marginal decline due to ongoing management of production amidst OE production rate variability and supply chain challenges.

Melrose anticipates adjusted operating profit between £700 million and £750 million, reflecting an adjusted operating margin of approximately 19% at the mid-point. The guidance includes variable consideration of between £340 million and £380 million, primarily dependent on OE build rates of key engine programs.

Free cash flow generation is projected to be in the range of £150 million to £200 million (after interest and tax). The company noted that, historically and in line with industry trends, profit and cash will be weighted towards the second half of the year.

CEO Peter Dilnot acknowledged the strong 2025 results but emphasized the challenges ahead, stating the company is “confident of further growth in 2026 and achieving our 2029 targets.”