Rheinmetall fires up earnings: Riding the wave of Europe's defence boom

Rheinmetall fires up earnings: Riding the wave of Europe's defence boom

Jacob Falkencrone

Global Head of Investment Strategy

Key points:

  • Record-breaking defence sales underpin impressive earnings growth.
  • A substantial and growing order backlog secures strong revenue visibility for the future.
  • Potential additional growth opportunities could arise from forthcoming NATO defence budget decisions, creating further momentum. 


This content is marketing material.

Rheinmetall kicked off the year with a bang, delivering first-quarter earnings beating soared beyond expectations, reflecting Europe's heightened defence spending amid ongoing geopolitical tensions. Shares responded positively, up around 1.5% at market open, indicating strong investor confidence

Earnings surprise – beating expectations

The German defence leader delivered remarkable quarterly results:

  • Operating profit of EUR 199 million—a substantial 49% increase compared to the previous year, significantly exceeding analysts' predictions of EUR 166 million.
  • Total sales surged impressively by 46% to EUR 2.31 billion, substantially outperforming market estimates set at EUR 2.05 billion.
  • Earnings per share (EPS) were equally impressive, coming in robustly at EUR 1.92, comfortably surpassing the forecasted EUR 1.49.

This strong performance was predominantly driven by booming defence sales. Rheinmetall’s Weapons and Ammunition segment reached a record-breaking EUR 599 million, marking an exceptional increase of 66%. Simultaneously, the Vehicle Systems division nearly doubled its sales, reporting EUR 952 million, fuelled by increased demand for tactical military vehicles and the strategic acquisition of Loc Performance in the United States, a move that has significantly expanded Rheinmetall’s presence in the lucrative North American defence market.

Growth engine – geopolitical tailwinds

Geopolitical uncertainty continues to act as a powerful catalyst for Rheinmetall’s impressive growth. The company's extensive EUR 63 billion order backlog is akin to a highly fuelled engine, offering remarkable visibility and ensuring steady revenue streams into the foreseeable future. This backlog is primarily bolstered by ongoing defence requirements across NATO nations aiming to enhance their military capabilities in response to persistent regional threats.

CEO Armin Papperger vividly captured the momentum of the company's current situation, remarking, "Customers aren’t just buying products—they're purchasing entire factories." This striking statement underlines Rheinmetall’s essential role in modernising Europe's defensive capabilities. The company is vigorously expanding production capacities through significant investments in new manufacturing plants and strategic acquisitions, reinforcing its role as an indispensable pillar of Europe's comprehensive defence strategy.

Looking forward – key indicators to watch

For investors, several critical factors should remain in sharp focus:

  • Order backlog: Rheinmetall's sizeable backlog ensures a steady revenue flow; however, timely execution and effective supply chain management will be crucial.
  • Operating margin expansion: Currently standing at 8.7%, investors should closely monitor the company’s ability to achieve its projected full-year target margin of approximately 15.5%, indicative of operational efficiency and strong financial health.
  • NATO defence budgets: Upcoming NATO summits represent pivotal events that could significantly influence Rheinmetall’s future outlook, especially if defence spending commitments are notably increased beyond current levels.

Guidance – cautiously bullish

Despite posting exceptional quarterly results, Rheinmetall’s management maintains a cautiously optimistic outlook. They reaffirmed the company's annual guidance, projecting sales growth between 25% and 30%, coupled with an operating margin target of around 15.5%. Crucially, this forecast currently excludes potential increases resulting from pending NATO budgetary discussions. Investors should therefore remain attentive to any upward revisions following NATO's forthcoming decisions, which could provide additional positive momentum to Rheinmetall's financial trajectory.

Navigating future challenges

While prevailing sentiment is notably positive, Rheinmetall faces significant headwinds, particularly within its civilian-focused Power Systems division. The ongoing softness in the automotive market, driven by economic uncertainty and shifting industry dynamics, has severely impacted this segment, with margins shrinking sharply to just 1.8%. Therefore, diversification beyond defence contracts will be essential to sustain the company's long-term growth, mitigating risks associated with reliance on defence expenditure alone.

Sector implications and investor takeaways

Rheinmetall’s robust financial performance underlines the strength and resilience of Europe's defence industry amid sustained geopolitical tensions and expanding military investments. For retail investors, Rheinmetall serves as an accurate and reliable barometer of the broader European security landscape, highlighting the industry’s critical role during times of uncertainty.

However, investors must recognise that current valuations already reflect significant growth expectations. It remains crucial to maintain a balanced perspective, vigilantly observing NATO's future defence spending decisions and Rheinmetall’s ongoing margin improvement initiatives.

In conclusion, Rheinmetall stands firmly positioned as Europe's trusted armourer in increasingly turbulent times. Retail investors should remain vigilant, closely monitoring strategic developments and preparing for rapid shifts shaped by evolving geopolitical realities. The clear takeaway: Rheinmetall is solidly placed, yet attentive investors will best navigate the opportunities and risks ahead.

 

Quarterly Outlook

01 /

  • Upending the global order at blinding speed

    Quarterly Outlook

    Upending the global order at blinding speed

    John J. Hardy

    Global Head of Macro Strategy

    We are witnessing a once-in-a-lifetime shredding of the global order. As the new order takes shape, ...
  • Equity outlook: The high cost of global fragmentation for US portfolios

    Quarterly Outlook

    Equity outlook: The high cost of global fragmentation for US portfolios

    Charu Chanana

    Chief Investment Strategist

  • Asset allocation outlook: From Magnificent 7 to Magnificent 2,645—diversification matters, now more than ever

    Quarterly Outlook

    Asset allocation outlook: From Magnificent 7 to Magnificent 2,645—diversification matters, now more than ever

    Jacob Falkencrone

    Global Head of Investment Strategy

  • Commodity Outlook: Commodities rally despite global uncertainty

    Quarterly Outlook

    Commodity Outlook: Commodities rally despite global uncertainty

    Ole Hansen

    Head of Commodity Strategy

  • Macro outlook: Trump 2.0: Can the US have its cake and eat it, too?

    Quarterly Outlook

    Macro outlook: Trump 2.0: Can the US have its cake and eat it, too?

    John J. Hardy

    Global Head of Macro Strategy

  • Equity Outlook: The ride just got rougher

    Quarterly Outlook

    Equity Outlook: The ride just got rougher

    Charu Chanana

    Chief Investment Strategist

  • China Outlook: The choice between retaliation or de-escalation

    Quarterly Outlook

    China Outlook: The choice between retaliation or de-escalation

    Charu Chanana

    Chief Investment Strategist

  • Commodity Outlook: A bumpy road ahead calls for diversification

    Quarterly Outlook

    Commodity Outlook: A bumpy road ahead calls for diversification

    Ole Hansen

    Head of Commodity Strategy

  • FX outlook: Tariffs drive USD strength, until...?

    Quarterly Outlook

    FX outlook: Tariffs drive USD strength, until...?

    John J. Hardy

    Global Head of Macro Strategy

  • Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges

    Quarterly Outlook

    Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges

    Althea Spinozzi

    Head of Fixed Income Strategy

The information on or via the website is provided to you by Saxo Bank (Switzerland) Ltd. (“Saxo Bank”) for educational and information purposes only. The information should not be construed as an offer or recommendation to enter into any transaction or any particular service, nor should the contents be construed as advice of any other kind, for example of a tax or legal nature.

All trading carries risk. Loses can exceed deposits on margin products. You should consider whether you understand how our products work and whether you can afford to take the high risk of losing your money.

Saxo Bank does not guarantee the accuracy, completeness, or usefulness of any information provided and shall not be responsible for any errors or omissions or for any losses or damages resulting from the use of such information.

The content of this website represents marketing material and is not the result of financial analysis or research. It has therefore has not been prepared in accordance with directives designed to promote the independence of financial/investment research and is not subject to any prohibition on dealing ahead of the dissemination of financial/investment research.

Saxo Bank (Schweiz) AG
The Circle 38
CH-8058
Zürich-Flughafen
Switzerland

Contact Saxo

Select region

Switzerland
Switzerland

All trading carries risk. Losses can exceed deposits on margin products. You should consider whether you understand how our products work and whether you can afford to take the high risk of losing your money. To help you understand the risks involved we have put together a general Risk Warning series of Key Information Documents (KIDs) highlighting the risks and rewards related to each product. The KIDs can be accessed within the trading platform. Please note that the full prospectus can be obtained free of charge from Saxo Bank (Switzerland) Ltd. or the issuer.

This website can be accessed worldwide however the information on the website is related to Saxo Bank (Switzerland) Ltd. All clients will directly engage with Saxo Bank (Switzerland) Ltd. and all client agreements will be entered into with Saxo Bank (Switzerland) Ltd. and thus governed by Swiss Law. 

The content of this website represents marketing material and has not been notified or submitted to any supervisory authority.

If you contact Saxo Bank (Switzerland) Ltd. or visit this website, you acknowledge and agree that any data that you transmit to Saxo Bank (Switzerland) Ltd., either through this website, by telephone or by any other means of communication (e.g. e-mail), may be collected or recorded and transferred to other Saxo Bank Group companies or third parties in Switzerland or abroad and may be stored or otherwise processed by them or Saxo Bank (Switzerland) Ltd. You release Saxo Bank (Switzerland) Ltd. from its obligations under Swiss banking and securities dealer secrecies and, to the extent permitted by law, data protection laws as well as other laws and obligations to protect privacy. Saxo Bank (Switzerland) Ltd. has implemented appropriate technical and organizational measures to protect data from unauthorized processing and disclosure and applies appropriate safeguards to guarantee adequate protection of such data.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the U.S. and other countries. App Store is a service mark of Apple Inc.