rheinmetall_panther

Rheinmetall earnings: waiting for Europe’s rearmament to fire

Jacob Falkencrone 400x400
Jacob Falkencrone

Global Head of Investment Strategy

Key points:

  • Q2 softness was driven by political delays, not demand weakness, with a record EUR 63 billion backlog supporting future growth.
  • Major German orders are expected in Q4, likely boosting revenue, margins, and potentially triggering a guidance upgrade.
  • Valuation is demanding, so future gains depend on flawless execution and contract delivery.


Germany’s Rheinmetall has become a symbol of Europe’s new defence era—an industrial cornerstone of NATO’s rearmament drive and one of the biggest winners of the post-Ukraine geopolitical reset. But in its latest earnings release, the continent’s most valuable arms manufacturer revealed what happens when strategy collides with politics: strong long-term prospects, but a short-term stall.

“The defence cycle is real, but not linear. Rheinmetall’s growth story is intact—but this quarter was a pause, not a pivot.”

Steady results meet political headwinds

In the second quarter, Rheinmetall reported sales of EUR 2.43 billion—up 8.8% year-on-year but shy of expectations around EUR 2.52 billion. Operating profit came in at EUR 276 million, modestly higher than last year’s EUR 270 million. But operating margins slipped to 11.3%, down from 12.1% in Q2 2024. That moderation in growth stands in stark contrast to Q1’s explosive results—46% sales growth. Net profit, however, more than doubled to EUR 159 million, highlighting operational resilience.

Rheinmetall shares fell more than 5% after the release, as markets reacted to the softer-than-expected top line and order intake—even as the company reaffirmed its full-year guidance.

The real story wasn’t the revenue—it was the absence of expected orders. Order intake came in weaker than anticipated as Germany’s delayed budget process pushed defence contracts into the second half.

This quarter was less about demand—and more about delayed signatures in Berlin.”

Political delays, not demand decay

Germany’s post-election transition and delayed budget approval have slowed the rollout of new defence contracts. With procurement effectively on hold, Rheinmetall saw expected orders pushed into the second half of the year. Once parliament finalises the 2025 budget after the summer break, order flow is expected to pick up sharply—especially after Chancellor Merz loosened the country’s fiscal rules to allow more aggressive defence spending.

Despite that, the company’s order backlog reached a new all-time high of EUR 63.2 billion. It’s more than six times its annual sales—and it’s still growing.

CEO Armin Papperger remains confident: "Our order books are full and will continue to grow." Germany’s defence budget is set to rise 70% by 2029, and NATO’s pledge to raise spending to 5% of GDP across member states only adds more firepower to future expectations.

“This wasn’t a demand problem—it was a paperwork problem. The backlog is strong, so quarterly softness is just the noise.”

Segment performance: shells lead the charge

Rheinmetall’s strength lies in its weapons and ammunition segment, which posted 25.6% year-on-year sales growth in H1. Demand for 155mm artillery shells and NATO-standard ammunition continues to surge, driven by Ukraine support and NATO stockpiling.

Vehicle systems also delivered solid performance, with H1 sales up 46%. But there are pressure points. Free cash flow turned deeply negative at minus EUR 911 million in Q2, driven by inventory build-up and aggressive capex—a key area for investors to watch.

Holding guidance—at least for now

Despite the soft quarter, Rheinmetall reaffirmed its full-year guidance: 25–30% revenue growth and a 15.5% operating margin. Management noted that this forecast doesn’t yet reflect the potential uplift from rising defence budgets across Europe.

Most analysts expect a guidance upgrade later this year, assuming contract delays resolve as expected. The real test will come in Q4, when Berlin’s procurement engine is finally set to restart.

Execution needs to catch up to expectations

Rheinmetall is scaling fast to meet Europe’s rearmament needs—investing in new ammunition and F-35 component factories, while expanding into India and Spain through strategic partnerships. These moves position it as a long-term defence cornerstone for NATO and its allies.

Rheinmetall trades at a forward P/E of around 57x—well above its historical average. This elevated multiple reflects delayed contract execution and front-loaded investments rather than current earnings strength.

Investors should watch closely: if contract deliveries ramp up and earnings catch up in H2, the multiple could normalise. But if delays persist or margins disappoint, there’s little room for error at these levels.

“At 57x forward earnings, the story has to play out as expected—there’s no cheap entry here.”

What investors should watch

  1. Q4 contract awards: This will be the decisive moment. If Germany’s delayed orders land as expected, Rheinmetall’s full-year numbers could surprise to the upside.
  2. Cash flow recovery: Watch whether the H2 ramp-up in deliveries converts backlog into cash. Negative cash flows cannot be a trend.
  3. Margin stabilisation: Especially in non-defence and electronic units, where profitability slipped.
  4. Execution on capex: New factories must deliver. Slippage here could cap future earnings.
  5. Macro and politics: Defence is cyclical and highly sensitive to elections, policy shifts, and geopolitical risk. Watch for both tailwinds—and crosswinds.

A strong position, but priced for perfection

Rheinmetall’s Q2 didn’t impress the market, and the stock fell accordingly. But beneath the surface is a company positioned at the centre of one of Europe’s most powerful structural trends: rearmament. The delays are frustrating—but they’re not demand destruction. In defence, politics isn’t noise—it’s part of the cycle.

For investors, Rheinmetall is no longer the under-the-radar trade it was in 2022. But it still stands out as a rare structural growth story in European industry—anchored in rising defence budgets, NATO’s strategic reset, and the remilitarisation of the continent.

That said, caution is warranted. At current valuation levels, much of the optimism is already priced in—and execution will need to be flawless for the stock to justify its premium.

“This is no longer a cheap bet on a hot theme—it’s a position that needs to deliver. With expectations this high, the story needs to stay on track and there’s little room for disappointment.”





This material is marketing content and should not be regarded as investment advice. Trading financial instruments carries risks and historic performance is not a guarantee of future results.

The instrument(s) referenced in this content may be issued by a partner, from whom Saxo receives promotional fees, payment or retrocessions. While Saxo may receive compensation from these partnerships, all content is created with the aim of providing clients with valuable information and options.

 

 

Quarterly Outlook

01 /

  • Q3 Investor Outlook: Beyond American shores – why diversification is your strongest ally

    Quarterly Outlook

    Q3 Investor Outlook: Beyond American shores – why diversification is your strongest ally

    Jacob Falkencrone

    Global Head of Investment Strategy

  • Q3 Macro Outlook: Less chaos, and hopefully a bit more clarity

    Quarterly Outlook

    Q3 Macro Outlook: Less chaos, and hopefully a bit more clarity

    John J. Hardy

    Global Head of Macro Strategy

    After the chaos of Q2, the quarter ahead should get a bit more clarity on how Trump 2.0 is impacting...
  • 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

  • Commodity Outlook: Commodities rally despite global uncertainty

    Quarterly Outlook

    Commodity Outlook: Commodities rally despite global uncertainty

    Ole Hansen

    Head of Commodity Strategy

  • 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, ...
  • 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

  • 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

Disclaimer

The Saxo Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website is not intended to and does not change or expand on this. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Please read our disclaimers:
- Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
- Full disclaimer (https://www.home.saxo/en-hk/legal/disclaimer/saxo-disclaimer)

None of the information contained here constitutes an offer to purchase or sell a financial instrument, or to make any investments. Saxo does not take into account your personal investment objectives or financial situation and makes no representation and assumes no liability as to the accuracy or completeness of the information nor for any loss arising from any investment made in reliance of this presentation. Any opinions made are subject to change and may be personal to the author. These may not necessarily reflect the opinion of Saxo or its affiliates.


Hong Kong

Contact Saxo

Select region

Hong Kong S.A.R
Hong Kong S.A.R

Saxo Capital Markets HK Limited (“Saxo”) is a company authorised and regulated by the Securities and Futures Commission of Hong Kong. Saxo holds a Type 1 Regulated Activity (Dealing in Securities); Type 2 Regulated Activity (Dealing in Futures Contract); Type 3 Regulated Activity (Leveraged Foreign Exchange Trading); Type 4 Regulated Activity (Advising on Securities) and Type 9 Regulated Activity (Asset Management) licenses (CE No. AVD061). Registered address: 19th Floor, Shanghai Commercial Bank Tower, 12 Queen’s Road Central, Hong Kong.

Trading in financial instruments carries various risks, and is not suitable for all investors. Please seek expert advice, and always ensure that you fully understand these risks before trading. Trading in leveraged products may result in your losses exceeding your initial deposits. Saxo does not provide financial advice, any information available on this website is ‘general’ in nature and for informational purposes only. Saxo does not take into account an individual’s needs, objectives or financial situation. Please click here to view the relevant risk disclosure statements.

The Saxo trading platform has received numerous awards and recognition. For details of these awards and information on awards visit www.home.saxo/en-hk/about-us/awards.

The information or the products and services referred to on this site may be accessed worldwide, however is only intended for distribution to and use by recipients located in countries where such use does not constitute a violation of applicable legislation or regulations. Products and services offered on this website are not directed at, or intended for distribution to or use by, any person or entity residing in the United States and Japan. Please click here to view our full disclaimer.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the US and other countries. AppStore is a service mark of Apple Inc. Android is a trademark of Google Inc.