German defense giant Rheinmetall reduced its 2026 sales outlook on Thursday, following the German government's cancellation of a planned frigate program where the company was expected to secure a contract. This setback has caused a 300 million euro financial blow to the company's naval division.
Comprehensive Core Financial Guidance Revised Downward
As a result, Rheinmetall has adjusted its 2026 sales forecast from the previous range of 14 billion to 14.5 billion euros down to 13.7 billion to 14.2 billion euros (approximately 15.8 billion to 16.4 billion U.S. dollars). Additionally, the company has significantly reduced its order backlog guidance from around 135 billion euros to over 100 billion euros, and lowered its capital expenditure target as a percentage of sales from 16% to 8%-9%. Despite these challenges, Rheinmetall maintains its free cash flow conversion rate and profit margin targets, stating it remains on track for record growth.
Market Reaction and Analyst Opinions
Following the announcement, Rheinmetall shares initially fell 4% in early trading before recovering, trading down 1.2% as of 07:45 GMT. Analysts at JPMorgan noted that they had anticipated the cancellation of the frigate program would have a larger impact on Rheinmetall beyond 2026, and this downward revision may signal slower growth for the company in 2027 and 2028.
Naval Strategy Hits a Hurdle, but Ambitions Remain
Since the onset of the Russia-Ukraine conflict in February 2022, Rheinmetall has seen its performance soar as Europe refocuses on defense. As Europe's largest ammunition manufacturer, the company has set a target of achieving annual sales of up to 50 billion euros by 2030. To expand its maritime footprint, Rheinmetall completed the acquisition of the naval division of German shipbuilder L眉rssen in March. Additionally, the company is considering the acquisition of German Naval Yards Kiel, pledging to make a final decision within weeks after a competitor withdrew last week. However, the German government's decision in June to cancel the long-delayed frigate program has dampened Rheinmetall's momentum. In response, Rheinmetall CEO Armin Papperger stated on Thursday, "In the naval business, we are also looking to the future. We will strive to fulfill existing maritime orders as a reliable partner with a high level of expertise and actively seek new orders on the international stage."
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