BAE Systems and Rolls-Royce lift profit outlooks as defense spending climbs

Rolls-Royce is not alone in reporting robust demand today: BAE Systems has also noted that ongoing rises in defense budgets worldwide have prompted it to raise its earnings projections.

BAE Systems sales increased 9 percent year-on-year in the first half to 15.8 billion pounds, while orders reached 16.4 billion pounds, an increase of 3.2 billion pounds from the prior year period.

The firm lifted its full-year profit guidance to a gain of 10 percent to 12 percent, above the previous range of 9 percent to 11 percent.

The manufacturer supplies a major share of UK armaments including tanks, fighter jets and munitions. It has also gained from higher US weapons outlays even before the conflict with Iran, plus demand from other UK export partners such as Gulf nations.

The upgrades supported the FTSE 100 rise on Thursday morning after an initial dip. Rolls-Royce shares advanced 3.7 percent while BAE Systems gained 1.1 percent.

Charles Woodburn, BAE chief executive, said:

Across the business our outstanding teams have delivered another strong period of operational and financial performance which gives us the confidence to upgrade our full year guidance.
The global threat picture remains highly volatile and governments are responding with sustained increases in their defence budgets. The combination of our proven execution diverse geographic footprint and continued investment in our technology and facilities alongside our healthy order backlog and growing opportunities across our markets positions us to keep delivering long-term growth.

BAE said it had expanded factories in Texas and New Hampshire to help the US government quadruple output of key munitions. The company also presented a new autonomous fighter drone named Brontanax at the Farnborough air show last week. Woodburn noted the loyal wingman concept which flies alongside a manned jet had generated substantial interest.

Key events

43m ago Shell doubles profits in second quarter thanks to Iran war oil price jump
1h ago BAE Systems and Rolls-Royce upgrade profits as defence spending surges
1h ago Rolls-Royce raises profit forecasts
2h ago FTSE 100 set to fall after US Federal Reserve holds interest rates

Carmakers are postponing final investment choices for UK plants until electric vehicle sales regulations are eased according to the leader of the British car industry trade body.

The chief executive of the Society of Motor Manufacturers and Traders Mike Hawes said firms with existing UK sites are evaluating new models yet have delayed commitments.

The British car sector has urged the Labour government to soften the zero emission vehicle mandate which requires rising electric car sales shares through 2030.

Requests to relax the rules have grown as the industry faces Chinese competition US tariffs and higher electric technology costs. UK vehicle output dropped 7.5 percent in the first half of 2026 versus a year earlier with factories building 386000 cars and commercial vehicles per the SMMT figures released Thursday.

The electric charging sector has opposed further adjustments while environmental groups express concern that any policy shift could add millions of tonnes of carbon emissions.

You can read the full story here:

The FTSE 100 continues to resist the global equities weakness that followed the Federal Reserve decision to hold interest rates steady rather than raise them to curb inflation. Londons blue-chip index is up 0.3 percent.

This performance owes much to Rolls-Royce the top gainer advancing 3.2 percent.

Standard Chartered bank rose 2 percent after several analysts increased their price targets.

Lloyds Banking Group gained 1.9 percent after surpassing profit expectations announcing fresh share buybacks a higher dividend and a new growth plan.

At the bottom pest control and cleaning firm Rentokil Initial fell 18 percent after dropping a target to reach 20 percent margins in North America. The company cited weakness in North America residential lead flow yet kept its annual outlook unchanged.

Rentokil chief executive Mike Duffy said:

We are not yet delivering on our growth potential leaving significant opportunities to improve.
Achieving our potential will require disciplined reinvestment primarily back into the North America business which we will fully self-fund through cost savings. Our focus is driving volume growth over short-term margin expansion and this targeted redeployment of resources will enable us over time to accelerate organic growth improve margins and free cash flow and deliver on the clear opportunity for shareholder value creation.

Duffy said the firm would simplify operations and reduce costs to support growth including exiting several of the 90 countries where it operates and shifting spending toward the key US market.

There has been a strong flow of corporate earnings this morning likely ahead of many executives departing for summer breaks.

Here are some of the main points as reported by Reuters:

Lloyds Banking Group posted a better than expected statutory pretax profit of 4.3 billion pounds for the first half of 2026 as chief executive Charlie Nunn also detailed the lenders next strategy to expand core operations and use technology such as AI to lower costs. It also launched a 1 billion pound share buyback on top of 1.75 billion pounds announced in February and raised its dividend.
London Stock Exchange Group tightened its full-year revenue growth forecast to between 7.0 percent and 7.5 percent after increased trading activity helped it slightly beat market expectations for first-half sales.
British American Tobacco raised its annual earnings growth forecast as rising demand for its Velo nicotine pouches and strong US results offset a sharp decline in Asia.
Mining company Anglo American said its loss for the first six months of the year more than halved raised its dividend and said it continued to advance a broad restructuring and its proposed merger with Teck Resources.
The Budweiser brewer Anheuser-Busch InBev reported revenue profit and volumes above forecasts in the second quarter on Thursday yet its shares declined as weakness in China offset a sales lift from the soccer World Cup.
French bank Societe Generale posted record quarterly profit on Thursday and increased its 2026 profitability target.

Shell doubles profits in second quarter thanks to Iran war oil price jump

Lauren Almeida

Shell more than doubled its profit in the second quarter of the year as Europes largest oil and gas company benefited from the surge in oil and gas prices caused by conflict in the Middle East.

The FTSE 100 companys net profit reached 9.84 billion dollars or 7.4 billion pounds in the three months ended in June more than double the same period last year.

The profit surge comes as wholesale energy prices have risen sharply because of the Middle East conflict boosting margins and activity on Shells trading desks.

The global oil price has climbed from about 61 dollars a barrel in January to highs of 126 dollars at the end of April owing to disruptions to flows through the strait of Hormuz. Brent crude the international benchmark traded at 93.18 dollars a barrel on Thursday.

Wael Sawan Shells chief executive said there had been severe disruption in global energy markets due to the war as the company also reported a 30 percent drop in production from its integrated gas division versus the same quarter last year.

You can read the full story here:

BAE Systems and Rolls-Royce upgrade profits as defence spending surges

Rolls-Royce is not the only weapons company to report strong demand today: BAE Systems has also said that sustained increases in defence budgets around the world meant it had upgraded its profit forecasts.

BAE Systems sales rose 9 percent year-on-year during the first half of the year to 15.8 billion pounds while it recorded orders worth 16.4 billion pounds up 3.2 billion pounds from the same period last year.

The company raised its profit outlook to an increase for the full year in the range of 10 percent to 12 percent slightly higher than the range of 9 percent to 11 percent it had previously given.

The manufacturer makes a large proportion of the UKs weapons ranging from tanks and fighter jets to munitions. But it has also benefited from demand in the US which had raised weapons spending even before its war on Iran and other export allies of the UK such as several countries in the Gulf.

The two upgrades helped the FTSE 100 to rise on Thursday morning after initially dropping. Rolls-Royce shares gained 3.7 percent while BAE Systems was up 1.1 percent.

Charles Woodburn BAE's chief executive said:

Across the business our outstanding teams have delivered another strong period of operational and financial performance which gives us the confidence to upgrade our full year guidance.
The global threat picture remains highly volatile and governments are responding with sustained increases in their defence budgets. The combination of our proven execution diverse geographic footprint and continued investment in our technology and facilities alongside our healthy order backlog and growing opportunities across our markets positions us to keep delivering long-term growth.

BAE said it had invested in factories in Texas and New Hampshire to support the US Governments ambition to quadruple production of critical munitions. The company also unveiled a new autonomous fighter drone called Brontanax at the Farnborough air show last week. Woodburn said the loyal wingman which would fly alongside a manned fighter jet had generated a lot of interest.

Rolls-Royce raises profit forecasts

Rolls-Royce reported 2.5 billion pounds in underlying profits for the first half of 2026 and raised its forecasts for profits for the full year as it said its turnaround efforts had brought higher earnings in all its divisions.

Underlying profit before tax for the first half of 2026 rose to 2.5 billion pounds up 48 percent from the same period a year earlier. Statutory profits halved to 1.9 billion pounds although those figures tend to be volatile because of the timing of payments. Revenues were up by 2 billion pounds year-on-year to 11.3 billion pounds.

The FTSE 100 jet engine manufacturer has gone through an extraordinary period of growth under chief executive Tufan Erginbilgic who was brought in 2023 to turn the company around. Those efforts appear to have paid off so far with investors welcoming soaring profits.

The manufacturer on Thursday said it expects 4.7 billion pounds to 4.9 billion pounds in underlying operating profit up from previous guidance of 4.0 billion pounds to 4.2 billion pounds. The free cashflow forecast is also up from between 3.6 billion pounds and 3.8 billion pounds to between 3.8 billion pounds and 4.0 billion pounds.

The company has benefited from the recovery since the coronavirus pandemic lockdowns in long haul flights many of which use Rolls-Royce engines. At the same time defence spending has risen since Russias full-scale invasion of Ukraine in 2022 and its power generation unit has benefited from increased demand from datacentres used by AI companies.

In its civil aerospace business the company has also spent heavily on fixes to passenger jet engines to keep them in the air for longer reducing the number of aircraft on ground at any time. It is also pressing ahead with producing small modular reactors to generate nuclear power in the UK Czechia and Sweden.

Erginbilgic said:

Our transformation continues to deliver and we are demonstrating that Rolls-Royce is now a very different company to that of the past.
We have made significant operational and strategic progress in the first half of the year. In civil aerospace where we continued to improve our aftermarket profitability we have also effectively eliminated aircraft on ground providing a significant operational benefit to our customers. In defence we continued to establish our leading position in autonomous propulsion with several key milestones achieved in the period.