Rolls-Royce Boosts Profit Forecast on Defense Spending and Data Center Demand
The aerospace and defense giant raised its full-year guidance after a significant increase in profits for the first half of the year.
Rolls-Royce has increased its full-year profit outlook, citing a rise in defense spending and demand from data centers as key drivers for its improved performance in the first half of 2026. The company reported a 46 percent increase in underlying operating profits, reaching £2.53 billion for the six months ending June 30.
The FTSE 100 firm achieved higher profitability across all its divisions, despite facing a challenging external environment. Rolls-Royce now anticipates making between £4.7 billion and £4.9 billion in underlying operating profit for the full year, an upward revision from its previous forecast of £4 billion to £4.2 billion.
Despite earlier concerns about potential disruptions to air travel due to the Iran war, which could have impacted its engine business for aircraft like the Airbus A350 and Boeing 787, the aerospace division saw a 31 percent rise in underlying profits to £1.6 billion. This improvement was supported by a recovery in airline operations and stronger performance in the large engine aftermarket and business aviation.
Surging military and defense expenditures also contributed significantly to Rolls-Royce's financial results, with profits in this sector climbing 57 percent to £522 million. The company's order intake reached £2.4 billion, with a substantial backlog of £17.5 billion, representing more than three years of revenue.
The appointment of John Healey as Chancellor, a former defense secretary, has been seen as a positive signal for defense firms, as Healey is expected to prioritize increased defense spending. The recent publication of the government's Defence Investment Plan has also provided greater clarity on funding for programs like the Global Combat Air Programme.
Rolls-Royce's power systems division experienced the most significant profit growth, up 72 percent to £528 million. This surge was attributed to robust demand from data centers, as clients seek alternative power solutions while awaiting grid connections.
Chief Executive Tufan Erginbilgic stated that the company's ongoing transformation has unlocked new growth opportunities and created a resilient, diversified portfolio. Shares in Rolls-Royce rose 4.3 percent to 1,439 pence following the announcement, extending their year-to-date gains to 20.3 percent. Since Erginbilgic took over as CEO in 2023, the company's shares have seen a remarkable increase of 1300 percent as part of his plan to enhance profitability.
Analysts note that while investors have experienced substantial returns, the focus now shifts to Rolls-Royce's ability to sustain this growth momentum.