Rolls-Royce (RR) Stock Surges as Profit Soars and Buyback Plan Tops £7 Billion

TLDR

• Rolls-Royce reported a 40% jump in annual profit for 2025, with underlying operating profit of £3.46 billion
• Free cash flow hit £3.3 billion, with net cash of £1.9 billion at year-end
• A £7–9 billion share buyback programme is planned across 2026–2028, with £2.5 billion targeted this year
• Medium-term operating profit targets raised to £4.9–5.2 billion, up from £3.6–3.9 billion
• A final dividend of 5 pence per share was declared, with a total 2025 dividend of 9.5 pence

Rolls-Royce Holdings (LSE: RR) delivered a strong set of full-year 2025 results on February 26, sending its stock up nearly 6%.

Rolls-Royce Holdings plc, RR.L

Underlying operating profit came in at £3.46 billion for the year, a 40% increase on the prior year and ahead of the £3.27 billion analyst consensus. The operating margin reached 17.3%.

Free cash flow for the year was £3.3 billion. The company closed 2025 with net cash of £1.9 billion on the balance sheet.

For 2026, Rolls-Royce is guiding for underlying operating profit of £4.0–4.2 billion. That range is at least 8% ahead of where analysts had been forecasting before today.

Free cash flow guidance for 2026 sits at £3.6–3.8 billion.

The company also laid out upgraded medium-term targets. Operating profit is now expected to reach £4.9–5.2 billion over the medium term, compared to the previous target of £3.6–3.9 billion.

The operating margin target has been raised to 18–20%, up from 15–17%. Free cash flow over the same period is targeted at £5.0–5.3 billion, versus the prior £4.2–4.5 billion range.

Return on capital is now guided at 23–26%, compared to the earlier 18–21% target.

Buyback and Dividend

The company announced a £7–9 billion share buyback programme running from 2026 to 2028. Of that total, £2.5 billion is set to be returned to investors this year alone.

A £2.3 billion buyback launched today, combined with the £200 million interim programme that started on January 2, 2026, makes up the full £2.5 billion 2026 target.

The buyback will be executed through Morgan Stanley and UBS, with the purchased stock being cancelled to reduce total share capital.

A final dividend of 5 pence per share was declared, bringing the total 2025 dividend to 9.5 pence per share.

What’s Behind the Numbers

Two key drivers powered the results: aero-engines and power systems.

The aero-engines unit benefited from airlines flying Rolls-powered jets more frequently, and from improvements in engine durability. Rolls-Royce engines power the Airbus A350 and Boeing 787.

The power systems division got a lift from the rapid build-out of data centres globally.

CEO Tufan Erginbilgic, who joined in 2023, has been pushing for higher margins as part of a broader transformation plan. At the new 18–20% margin target, Rolls moves closer to the margins reported by GE Aerospace, its main rival in the widebody engine market.

Bernstein analysts noted the results beat expectations and called the 2026 and 2028 targets “very strong,” adding they should trigger earnings upgrades across the analyst community.

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