Melrose's Mixed Earnings Amidst Incident
Melrose Reports Increased Adjusted Profit and Revenue Despite Significant Garden Grove Incident Costs
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Key Points
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Melrose expanded its Pratt & Whitney agreement to include low-pressure compressor vanes on PW1500 and PW1900 engines, broadening its engine aftersales scope.
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Dilnot outlined three distinct routes to market for defense uncrewed aerial vehicles (DUAVs) leveraging GKN Aerospace capabilities, including approaches centered on the airframe side and related aerospace capabilities.
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Statutory pre-tax profit dropped to £89 million in the first half from £379 million a year earlier, driven largely by unrealised losses on foreign exchange derivatives, even as adjusted operating profit rose.
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Melrose increased its interim dividend by 13% to 2.7p per share as part of the first-half results presentation.
Melrose Industries reported a sharp drop in statutory pre-tax profit to £89 million in the first half of 2026, down from £379 million a year earlier, hit by foreign exchange losses and costs from an incident at its California facility, according to Morningstar. Yet adjusted operating profit rose 16%, and the company kept its full-year guidance unchanged, targeting revenue of £3.75–£3.95 billion and adjusted operating profit of £0.70–0.75 billion.
The Garden Grove incident — which halted production at Melrose's California plant — cut first-half revenue by £16 million and shaved £9 million off adjusted operating profit, Hargreaves Lansdown reported. Melrose warned of a further £25–£30 million in exceptional costs from the incident in the second half and paused its £175 million share buyback programme.
Garden Grove Fallout Weighs on Costs and Cash
The Garden Grove facility in California remains only partially back online. Base acrylic output is still halted while Melrose awaits regulatory approval to restart, according to Morningstar. The company said the incident will add £25–£30 million in one-off costs in the second half of 2026, on top of the £9 million already absorbed in the first half.
Despite the setback, free cash flow swung to a positive £13 million in the first half. Melrose paused its £175 million share buyback while it assesses the full financial impact, GuruFocus noted. Even so, the board raised the interim dividend by 13% to 2.7p per share — a signal of confidence in the underlying business.
Engines Division Powers Group Growth at 19%
Melrose's Engines division was the standout performer, growing about 19% in the first half, according to Hargreaves Lansdown. Overall adjusted revenue climbed 10% to £1.9 billion. Strong engine sales and aftermarket demand — meaning repairs and spare parts for planes already in service — drove most of the gains.
Melrose also expanded its deal with Pratt & Whitney to cover low-pressure compressor vanes on PW1500 and PW1900 engines, broadening its aftersales reach, GuruFocus reported. The company remains confident its GTF engine programme — short for Geared Turbofan — will turn cash positive by 2028, backed by two new upgrades: GTF Advantage and Hot Section Plus.
Foreign Exchange Losses Slam Statutory Profit
The headline profit number looked alarming. Statutory pre-tax profit collapsed to £89 million from £379 million in the same period last year, according to MarketScreener. The main culprit was unrealised losses on foreign exchange derivatives — financial contracts Melrose uses to manage currency risk. These losses don't affect cash but hit the reported profit figure hard.
Adjusted operating profit — which strips out these one-off items — told a different story, rising 16%. Efficiency gains and strong aftermarket demand helped offset Garden Grove-related costs, Hargreaves Lansdown noted. Civil and defence demand both remained resilient through the period.
Defence Drones and Full-Year Outlook Stay on Track
Melrose also laid out new plans for defence uncrewed aerial vehicles, known as DUAVs. CEO Peter Dilnot described three distinct routes to market using GKN Aerospace capabilities, GuruFocus reported. The company did not specify a timeline but signalled this as a growth area sitting alongside its civil aerospace work.
Full-year guidance remained unchanged despite the Garden Grove uncertainty. Melrose still targets £3.75–£3.95 billion in revenue and £0.70–0.75 billion in adjusted operating profit for 2026, according to Morningstar. Management said margins and cash generation continue to improve, and the group expects momentum to build in the second half as production gradually resumes.
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