Melrose Industries profits soar but shares plummet over tariff concerns

Melrose Industries, the Birmingham-based aerospace engineering giant, reported a remarkable 36% increase in pre-tax profits for 2024, reaching £438 million. The strong performance was driven by growth in both its engines and structures divisions, alongside a significant rise in demand for aftermarket services. Despite the robust financial results, the company’s shares dropped sharply by 17.2% after it revealed it had not accounted for the impact of trade tariffs in its revenue forecasts.

The group, which supplies parts for F-35 fighter jets as well as Chinook and Apache helicopters, benefited from an 11% increase in full-year revenues, now standing at £3.47 billion. However, Melrose’s projections for 2025 have disappointed investors, with anticipated revenues of between £3.55 billion and £3.7 billion, falling short of the £3.77 billion expected by the City. The omission of tariff-related impacts from projections was seen as a key factor behind the disappointment.

Matthew Gregory, the company’s Chief Financial Officer, clarified that while the new USA tariffs on imports from Mexico could affect some operations, the impact was not expected to be material in the short term. Melrose operates production facilities in Mexico, exporting aerospace components to both Europe and the United States.

The engines division performed strongly, with revenues rising 26% to £1.46 billion in 2024. This growth can be attributed to increasing demand for aftermarket services, as companies extend the operational lifespan of older aircraft in response to ongoing challenges in new production. However, the structures division faced slower growth due to industry-wide supply chain disruptions, recording a modest 3% revenue rise to £2.01 billion.

Chief Executive Peter Dilnot highlighted that Melrose has managed to navigate a challenging landscape. He commented, “We delivered a strong performance in 2024 with profit at the top end of expectations, despite well-documented difficulties in the aerospace industry such as supply chain constraints.” The company also outlined its long-term vision, aiming to reach £5 billion in revenue and £1.2 billion in adjusted operating profit by 2029.

Melrose’s strategic shift to focus entirely on aerospace continues to evolve. It completed the spin-off of its non-aerospace divisions, such as automotive and powder metallurgy, into Dowlais Group in April 2023. This transition underscores its ambitions to consolidate its position in the aerospace and defence market.

Despite the optimism surrounding long-term targets and ongoing demand for its capabilities, analysts have expressed mixed views. Stifel analyst Mark Davies Jones remarked that while the 2024 results exceeded forecasts, the lack of immediate upgrades to 2025 expectations has fuelled investor caution.

Shares in Melrose fell by 117.5p to close at 559p, reflecting investor sentiment amidst the uncertainty caused by tariff implications and tempered revenue guidance.