Rheinmetall (RHMG) Stock Dips 2% Despite Record €73 Billion Order Backlog

Key Takeaways

• Shares of Rheinmetall declined over 2% following first-quarter results that fell short of Wall Street expectations
• First-quarter revenue reached €1.94 billion, representing 8% growth year-over-year but missing the €2.27 billion analyst estimate
• Operating earnings climbed 17% to €224 million, yet remained below the anticipated €262 million
• The company’s order backlog surged 31% to an unprecedented €73 billion, now incorporating Naval Systems for the first time
• Management reaffirmed its 2026 targets of €14–€14.5 billion in revenue with approximately 19% operating margins

The German defense contractor delivered first-quarter revenue of €1.94 billion, marking an 8% improvement from the prior year’s €1.80 billion. However, this figure significantly undershot Wall Street’s consensus forecast of €2.27 billion.

Operating earnings reached €224 million, representing a 17% annual increase, though falling short of the market’s €262 million projection. The operating margin expanded to 11.6%, up from 10.6% in the comparable period.

Earnings per share from continuing operations improved to €2.18 compared to €1.78 last year, but trailed the €2.70 consensus target.

Rheinmetall AG, RHM.DE

Operating free cash flow turned negative at €285 million during the quarter, contrasting sharply with the positive €243 million recorded a year ago and missing expectations for positive €181 million.

Shares retreated more than 2% on Thursday as investors digested the disappointing metrics, despite signs of underlying momentum in certain areas.

Unprecedented Order Book Provides Long-Term Visibility

The highlight of the quarterly report was the order backlog, which expanded 31% to €73 billion from €56 billion in the year-ago period. This increase includes Naval Systems for the first time, contributing an order backlog of €5.50 billion.

New order intake, however, declined 55% to €4.90 billion versus €10.70 billion in the previous year’s quarter. Rheinmetall attributed this drop to exceptionally large multi-billion euro contracts that had inflated the prior-year comparison.

Analysts at Goldman Sachs observed that investors would likely scrutinize the German demand environment and the timing of future contract awards.

Strategic Expansion into Cruise Missile Technology

Beyond financial results, Rheinmetall announced significant strategic developments in cruise missile manufacturing. The company revealed plans to begin producing sophisticated cruise missiles alongside Dutch partner Destinus, with production targeted for the fourth quarter of 2026 or early 2027 through a new joint venture called Rheinmetall Destinus Strike Systems, where Rheinmetall maintains 51% ownership.

The Destinus Ruta Block 2 missile successfully completed flight testing in late April. The weapon boasts a range exceeding 700 kilometers and targets critical infrastructure assets.

CEO Armin Papperger acknowledged that negotiations with Lockheed Martin regarding rocket and missile production facilities in Germany are progressing more slowly than anticipated, citing disputes over cost allocation. He mentioned that Rheinmetall is simultaneously pursuing missile collaboration opportunities with Raytheon.

Papperger expressed optimism about second-quarter performance, highlighting anticipated large-volume contracts in naval systems and military vehicles, along with full-capacity operations at the Murcia ammunition facility in Spain following recovery from last year’s explosion incident.

The company also submitted a preliminary offer for German Naval Yards Kiel and is evaluating the acquisition of a portion of Romania’s Mangalia shipyard as part of its naval division expansion strategy.

Rheinmetall disclosed ongoing discussions with multiple Middle Eastern nations to supply up to 10 air defense systems in 2025, responding to heightened regional security concerns stemming from the U.S.-Israel tensions with Iran.

The company maintained its full-year 2026 outlook: revenue between €14 billion and €14.5 billion with operating margins around 19%.

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