Marathon Oil(MRO) - 2025 H1 - Earnings Call Transcript

Financial Performance - Revenue increased by 6% year-on-year, with operating profit rising by 29% to £310 million, driven by revenue growth and transformation benefits [4][7][22] - Free cash flow improved by £91 million compared to the previous year, primarily due to increased earnings and lower restructuring costs [4][22][25] - Operating cash before CapEx and PMI costs was £118 million, £58 million higher than last year [23] Business Line Performance - The engines division saw revenue growth of 11%, primarily driven by aftermarket and original equipment (OE) growth [10][11] - Structures division revenue grew by 3%, with defense revenue up 10% due to increased build rates and improved commercial terms [14][16] - Engines operating profit grew by 26% to £261 million, with margins at 33.4%, while structures operating profit increased by 32% to £63 million, with margins rising from 4.7% to 6.7% [14][18] Market Performance - Aerospace and defense markets are experiencing structural growth, with record order backlogs and expanding aftermarket opportunities [2][33] - European and NATO defense spending commitments have significantly increased, positively impacting the defense outlook [2][35] Company Strategy and Industry Competition - The company is focused on leveraging its design-led positions in leading aircraft to drive growth, with a clear strategy centered around existing platform growth, new target opportunities, and future flight technologies [36][38] - The company aims to achieve high single-digit revenue growth to £5 billion by 2029, with a target of generating £600 million in free cash flow [52][54] Management Commentary on Operating Environment and Future Outlook - Management expressed confidence in delivering full-year guidance despite ongoing supply chain challenges and tariff disruptions [32][36] - The company anticipates substantial cash generation in 2025, marking an important inflection point towards long-term targets [52][54] Other Important Information - The company achieved its target of having 85% of its defense portfolio sustainably repriced six months ahead of schedule [5][16] - The introduction of US tariffs has been largely mitigated through various measures, including temporary importation under bond [19][62] Q&A Session Summary Question: The place of structures in the portfolio - Management emphasized that both businesses are poised for significant profit and cash upticks, with restructuring work nearing completion [58][59] Question: Clarification on engine repair business and tariffs - Management explained that tariffs affected the engine repair business, but mitigation measures have been implemented to restore growth [62][63] Question: Medium-term growth trajectory around cash - Management indicated that while specific guidance for 2026 is not provided, the business is expected to continue growing and improving margins [70][72] Question: Update on the A350 situation - Management acknowledged challenges but expressed confidence in meeting production ramp-up demands in collaboration with Airbus [78][79] Question: Cash flow generation ability of engines and structures - Management stated that both divisions are performing well and generating cash in line with expectations, though specific splits are not disclosed [86][87] Question: Update on additive manufacturing business - Management reported strong demand for additive fabrication technology, with ongoing efforts to certify components and industrialize the process [90][92]