Melrose's supply chain caution eclipses earnings surge

By Aby Jose Koilparambil

(Reuters) -Melrose's warning of ongoing supply chain challenges in the booming aviation sector unsettled investors on Thursday, even as the British aerospace supplier beat 2023 profit estimates and raised its earnings forecast for this year.

Shares in the FTSE 100 firm were down about 4% at 0920 GMT, despite the company lifting its 2024 group operating profit guidance by 30 million pounds ($38 million).

Melrose, which supplies airframe structures and engine components to aerospace firms, said 2024 revenues would be hampered by supply chain issues, as well as short-term destocking due to the phasing of commercial aircraft build rates, and the impact of planned exits and disposals in its structures division.

Still, the company forecast revenues of 4 billion pounds this year, up from 3.35 billion pounds in 2023.

Group Finance Director Matthew Gregory told Reuters the supply chain problems in its engines division were around delays in getting forgings and castings, while in the structures division it was about the complexity of the process and less about the raw materials.

However, Gregory said the company was "not seeing a great deal of impact" from Red Sea shipping disruptions as many of its products are moved by air freight.

The owner of GKN Aerospace has recovered strongly from the pandemic, thanks to surging airline traffic, but the recent crisis at Boeing caused by the blow-out of a 737 MAX 9 cabin panel during flight has tempered industry expectations of a faster rate of revenue growth.

Gregory said the Boeing crisis was not having a major impact on Melrose overall. Boeing is one of Melrose's top 10 customers.

Melrose, which spun off its auto and other businesses last year to focus on aerospace, said adjusted operating profit from continuing operations surged more than three-fold last year to 390 million pounds, ahead of analysts' average estimate of 327.2 million pounds.

It proposed a final dividend of 3.5 pence per share for 2023.

($1 = 0.7854 pounds)

(Reporting by Aby Jose Koilparambil in Bengaluru; Editing by Janane Venkatraman and Mark Potter)