Thales Cuts Margin Guidance Amid Space Woes — Update

By Mauro Orru

Thales lowered its forecast for a key profitability margin this year as challenges in its space activities pile up, eclipsing growing orders at its core defense business.

The French aerospace-and-defense company said its closely watched earnings before interest and taxes margin should come in between 11.7% and 11.8% this year, below a previous forecast of 11.7% to 12%.

Thales is expecting a negative margin for its space business, citing a drop in commercial telecommunications activity, its decision to maintain a high level of research and development investments, and restructuring costs.

The group in March unveiled plans to redeploy some 1,300 jobs from its space joint venture with Italy's Leonardo within the group in 2024 and 2025, but without any forced departures.

Chief Executive Patrice Caine said the group is committed to restoring profitability in the space business.

Thales isn't the only European company facing challenges in space operations. Last month, Airbus said it would book a charge of roughly 900 million euros ($980.2 million) in its first-half balance sheet, citing new forecasts on workload, risks and costs for some telecommunications, navigation and observation programs.

Thales shares have climbed about 10% since the start of the year, but shed as much as 5% Tuesday.

The downgrade to the margin guidance comes as Thales posted orders of EUR10.77 billion for the first six months of the year, up 23% organically and above analysts' expectations of EUR10.38 billion, according to a market consensus provided by the company.

Thales's defense and security business accounted for the lion's share of orders, contributing EUR6.12 billion to the total.

Net profit jumped 57% to EUR1.02 billion, while EBIT came in at EUR1.10 billion, generating an 11.5% margin that was in line with analysts' forecasts.

Meanwhile, sales climbed 6% organically to EUR9.49 billion, slightly below analysts' expectations. However, Thales improved its sales projections for the year and now expects organic growth of 5% to 6% compared with 4% to 6% previously.

Caine said Thales opted to refine its guidance based on improved visibility for the rest of the year.`

Write to Mauro Orru at mauro.orru@wsj.com

(END) Dow Jones Newswires

July 23, 2024 05:06 ET (09:06 GMT)

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