Rolls-Royce shares climb as lifts annual outlook after first half beat

Rolls-Royce Holdings PLC on Thursday raised profit and free cash flow guidance after beating expectations in the first half of 2026, with improved profit margins a highlight.

The London-based aerospace and defence company said pretax profit slumped 60% to £1.93 billion in the first six months of 2026 from £4.84 billion the year prior. The prior year period was boosted by a £679 million gain on a disposal.

Operating profit, which strips out this item, increased 17% to £2.42 billion from £2.07 billion. Underlying operating profit grew 46% to £2.53 billion from £1.73 billion, which RBC Capital Markets said was 38% ahead of £1.84 billion consensus.

Revenue rose 21% to £11.45 billion from £9.49 billion, outstripping £10.17 billion consensus.

"Our transformation continues to deliver, and we are demonstrating that Rolls-Royce is now a very different company to that of the past," Chief Executive Tufan Erginbilgic said.

Shares in the firm rose 3.7% to 1,432.24 pence each in London on Thursday morning, having traded as high as 1,463.00p, approaching the stock's all-time high price of 1,532.60p.

Reflecting the strong start to the year, Rolls-Royce raised annual guidance. It now expects to deliver underlying operating profit of £4.7 billion to £4.9 billion, ahead of £4.2 billion consensus, and free cash flow of £3.8 billion to £4.0 billion for the full-year, above £3.7 billion consensus.

Its profit guidance was previously ranged at £4.0 billion to £4.2 billion, and the cash flow goal was £3.6 billion to £3.8 billion.

Free cash flow totalled £1.96 billion in the first half, up from £1.58 billion a year before.

Rolls-Royce reported improved profitability across all three divisions. Civil Aerospace delivered an underlying operating margin of 25.3%, up from 24.9% on-year, driven by a strong large engine aftermarket performance, with higher long-term service agreement margins and time and materials performance, and contractual improvements.

Defence delivered an underlying operating margin of 21.0%, soaring from 15.4% a year ago, reflecting actions to support strong aftermarket performance alongside continued self-help, Rolls-Royce said.

Power Systems reported an underlying operating margin of 20.3%, improved from 15.3%, driven by strong performance in power generation, reflecting higher volumes, an improved mix, and commercial optimisation, alongside higher governmental profit, the company said.

Cost efficiency actions continue to deliver results, it added.

Rolls-Royce lifted its interim dividend to 6.0 pence per share from 4.5p. It said it has completed £1.4 billion of the planned £2.5 billion share buyback for 2026 to date, which is part of a multi-year buyback programme totalling £7 billion to £9 billion across 2026 to 2028.

Copyright 2026 Alliance News Ltd. All Rights Reserved.