Key Takeaways
- Shares of Rheinmetall declined over 2% following first-quarter results that disappointed Wall Street across several metrics
- First-quarter revenue reached €1.94 billion, marking an 8% annual increase but falling short of the €2.27 billion analyst estimate
- The company’s operating profit climbed 17% to €224 million, yet remained below the €262 million projection
- Total order backlog surged 31% to an unprecedented €73 billion, boosted by the first-time inclusion of Naval Systems division
- Management reaffirmed 2026 financial targets of €14–€14.5 billion revenue and approximately 19% operating margin
The German defense manufacturer reported quarterly revenue of €1.94 billion for the period, representing an 8% uptick compared to the €1.80 billion generated in the same quarter last year. However, this figure significantly underperformed the Street consensus of €2.27 billion.
On the profitability front, operating earnings reached €224 million, marking a 17% improvement year-over-year, though falling below market expectations of €262 million. The company’s operating margin expanded to 11.6% from the prior year’s 10.6%.
Basic earnings per share from continuing operations improved to €2.18 versus €1.78 in the comparable period, yet trailed the consensus forecast of €2.70.
Operating free cash flow turned negative, posting a deficit of €285 million for the quarter—a stark reversal from the positive €243 million recorded a year ago and significantly worse than analyst projections of positive €181 million.
Shares retreated more than 2% in Thursday trading as investors digested the across-the-board misses on key financial indicators, despite modest topline growth.
Massive Order Pipeline Provides Silver Lining
The brightest spot in the quarterly release was the company’s order backlog, which expanded 31% to €73 billion from €56 billion in the year-ago period. This marks the first reporting period incorporating Naval Systems, which contributed an additional €5.50 billion to the pipeline.
New order intake, however, plummeted 55% to €4.90 billion versus €10.70 billion in the prior-year quarter. Rheinmetall attributed this decline to exceptionally large contracts secured during the comparison period.
Analysts at Goldman Sachs suggested investors would likely scrutinize the German defense spending environment and the timing of future contract awards.
Strategic Expansion Into Cruise Missile Manufacturing
Beyond quarterly financials, the defense contractor announced significant strategic initiatives in cruise missile development. Management revealed plans to commence production of sophisticated cruise missiles in partnership with Netherlands-based Destinus, targeting launch between Q4 2026 and early 2027 through a newly established joint venture called Rheinmetall Destinus Strike Systems, where Rheinmetall maintains majority control with a 51% ownership stake.
The Destinus Ruta Block 2 missile successfully completed flight testing in late April. The weapon system features a range exceeding 700 kilometers and targets critical infrastructure assets.
Chief Executive Armin Papperger disclosed that negotiations with Lockheed Martin regarding rocket and missile production facilities in Germany have progressed more slowly than anticipated, citing disputes over financial burden-sharing arrangements. He revealed the company is simultaneously pursuing potential missile collaboration opportunities with Raytheon.
Papperger expressed optimism for second-quarter performance, highlighting anticipated high-volume contracts in naval systems and military vehicles, alongside full operational capacity at the company’s Murcia ammunition facility in Spain following last year’s facility explosion.
The company has submitted a preliminary offer to acquire German Naval Yards Kiel and is evaluating a potential partial acquisition of Romania’s Mangalia shipyard as part of its naval capabilities expansion strategy.
Management confirmed ongoing discussions with multiple Middle Eastern nations to supply up to 10 air defense systems during the current year, driven by heightened regional security concerns following escalating tensions between the U.S.-Israel alliance and Iran.
Full-year 2026 financial guidance stands unchanged, projecting revenue between €14 billion and €14.5 billion with an operating margin of approximately 19%.
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