Meggitt sees stronger growth but warns on margins

(Reuters) - Meggitt MGGT.L expects revenues to increase more than previously forecast in 2018 after higher U.S. defence spending helped the British engineering firm post a stronger-than-anticipated second quarter.

Defence contractors have been looking to benefit from higher spending by the United States under President Donald Trump, who has called for a bigger and stronger military.

The improved guidance echoes recent comments from other defence operators like Chemring Group Plc CHG.L and Ultra Electronics ULE.L.

Chemring said last month it was targeting contracts worth around $2 billion (1.52 billion pounds) in the United States after nearly five years of relatively low demand, while Ultra said most of its operations had better-than-expected orders in the first half.

Meggitt, which makes components for vehicles, aircraft and the energy industry and provides valves and monitoring equipment for power generators, said it now expects revenue to rise 4-6 percent from its prior forecast of 2-4 percent.

The company’s shares were up 4 percent in morning trading.

It did, however, forecast operating margins at the lower end of its 17.7 to 18 percent guidance range on slower-than-anticipated recovery at its polymers and composites division in the first half.

Meggitt said it would look to boost profits by reorganising into four divisions with the airframe systems business now serving commercial, business and military aircraft manufacturers.

Other divisions would focus on serving aero-engine manufacturers, energy and equipment and support services.

The company, which will post half year results on August 7, said it now expects 2018 organic revenue at its military business to grow 6-8 percent, buoyed by higher demand for its training equipment and fuel tanks, compared to a previous forecast of 3-5 percent.

Reporting by Justin George Varghese in Bengaluru; editing by Jason Neely and Kirsten Donovan