Aerospace, defense and energy company Meggitt PLC (MGGT.LN) said Tuesday that orders for its civil aerospace business are on the increase, which should boost revenue in the second half of the year, as it reported higher profit excluding changes in its hedge book value and raised its dividend.

"Leading indicators for our civil aerospace business continue to improve and order intake from the beginning of the second quarter has shown a steady increase," the company said. "Civil revenues should return to growth later in the second half on the back of the improving order intake."

Echoing comments from peers in the defense sector, it said military revenue was slightly down as customers delayed placing orders, but it expects a recovery in the second half of the year.

Most of its defense revenue comes from the U.S., and it is expecting the Department of Defense budget and Quadrennial Defence Review program to be passed by lawmakers, leading to a 3% to 4% increase in U.S. defense spending over the medium term.

Meggitt had been hit by the credit crisis and resulting economic downturn as customers including Boeing Co. (BA) and Airbus saw orders decline. However, the civil aerospace industry has staged a sharp recovery this year with orders again on the increase and the manufacturers set to raise production rates in 2011 and 2012. The defense market is expected to slow in Europe this year as governments pare back defense spending to cut budget deficits, but Meggitt is most exposed to the U.S.

The British company reported a 34% decline in pretax profit to GBP66.3 million in the six months to June 30 and earnings per share fell 32% to 7.5 pence as it marked a loss in the fair value of its forward currency hedges compared with last year's substantial gain. Net profit was GBP51.8 million, down from GBP74.6 million.

Excluding the marking to market of the hedge book value and exceptional items, the company reported a 3% rise in pretax profit to GBP116.2 million and a 2% rise in EPS to 12.3 pence. Revenue was down 6% at GBP549.7 million.

Signalling its confidence, Meggitt raised its interim dividend 6% to 2.85 pence.

The company has been cutting costs in response to the recent downturn in the civil aerospace market by cutting jobs, removing a layer of management, freezing executive pay and reducing pension and other benefits. It said it is on track to exceed its cost savings target of GBP50 million and is raising the target to GBP55 million. It made savings of GBP24 million in the first half of the year.

The cost cuts helped Meggitt lift its operating margin to 25.7% in the first half of the year from 24% a year earlier.

Analysts welcomed the company's outlook for improved civil aerospace and military markets.

"Together with a recovery in second-half military revenues and cost reductions that are running materially ahead of plan, we believe positive momentum for Meggitt has commenced as the profile of the cycle upturn takes shape," brokerage Investec said in a note to clients. It is maintaining a buy rating on the stock.

Still, at 1006 GMT, Meggitt's shares were down 14 pence, or 4.5%, at 294 pence, as investors took profits out of the 13% increase in the stock so far this year.

Meggitt Chief Executive Terry Twigger told Dow Jones Newswires that the company would continue to focus on organic growth although it would consider acquisitions if the right target emerged.

The company's free cash flow before dividends and corporate activity was up 20% on the year to GBP44 million in the first half of the year and it has no outstanding debt issues after raising $600 million of long-term debt through a private placement in the U.S. to replace bank facilities maturing in 2012 and 2013. It said the placement was done at "attractive rates."

Meggitt has products on most of the 16,000 aircraft in the global large jet fleet as well as on the 6,000 regional aircraft and 17,000 business jets. Products include brakes and wheels, polymers and composites to coat fuel tanks and protect against ice, fire protection systems, and sensoring and monitoring equipment.

-By Steve McGrath, Dow Jones Newswires; 44-20-7842-9284; steve.mcgrath@dowjones.com