Rolls-Royce and BAE Systems are anticipating higher profits due to increased defence spending by governments globally. Both companies updated their earnings guidance on Thursday morning, attributing the revisions to government commitments to invest more in defence systems.
Rolls-Royce, which manufactures jet engines and turbines, lifted its forecast for underlying operating profit this year to between £4.7bn and £4.9bn, an increase from its earlier guidance of £4bn to £4.2bn. The company also raised its free cashflow forecast from £3.6bn-£3.8bn to £3.8bn-£4bn. Rolls-Royce has benefited from a rise in defence spending since 2022 and increased demand from datacentres used by AI companies. Its civilian passenger jet engine business has also seen soaring revenues as long-haul flights have recovered.
BAE Systems, a major producer of UK weapons, reported that sustained increases in defence budgets worldwide led to its upgraded profit forecasts. The company now expects earnings to grow by 10% to 12%, slightly higher than its previous estimate of 9% to 11%. BAE has seen demand from the US, which increased weapons spending before its conflict with Iran, and from other UK export allies, including several Gulf countries.