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Shares of Germany’s largest defence contractor Rheinmetall fell by about 5.75% on Wednesday after the company reported strong revenue growth and record operating profit for 2025 but failed to meet market expectations.
The company said sales rose 29% year-on-year to 9.935 billion euros, driven by surging demand for defence equipment amid escalating geopolitical tensions.
Operating profit, the company’s preferred profitability metric, climbed to 1.84 billion euros from 1.4 billion euros a year earlier, while the operating margin improved to 18.5%.
However, the results fell short of company-compiled consensus forecasts, which had projected sales of about 10.12 billion euros, operating profit of 1.92 billion euros and an operating margin of around 19%.
Net profit also declined slightly to 696 million euros in 2025 from 717 million euros the previous year, well below the 1.15 billion euros analysts had expected, according to data compiled by Visible Alpha.
Order backlog hits record level
Despite the earnings disappointment, Rheinmetall’s order backlog reached a record 63.8 billion euros, representing a 36% increase from the previous year.
The company also proposed a dividend of 11.50 euros per share for 2025, up from 8.10 euros paid for the prior fiscal year.
The record backlog underscores the growing demand for defence equipment across Europe and among NATO members as governments increase military spending in response to rising global tensions.
The company said the current security environment continues to support long-term demand for its products.
“The tense security situation underpins the promising position of the group,” Rheinmetall said in a statement.
Company shifts focus entirely to defence
Rheinmetall is also restructuring its business strategy to fully capitalize on the surge in defence spending.
The company said it has put its civilian automotive operations up for sale and will concentrate entirely on its defence activities.
The company plans to focus on providing systems for the armed forces across land, air, space and, increasingly, naval domains.
This strategic shift is intended to position Rheinmetall as a key supplier of advanced defence systems to Western militaries as geopolitical risks continue to escalate.
Strong sales outlook driven by global conflicts
Looking ahead, Rheinmetall expects significant growth as demand for military equipment rises due to ongoing conflicts, including the wars involving Ukraine and Iran.
The company forecast sales growth of between 40% and 45% this year, which would take revenue to between 14 billion and 14.5 billion euros.
Rheinmetall also expects its operating profit margin to increase slightly to around 19%.
The conflicts in Iran and Ukraine have highlighted the growing role of drones in modern warfare, demonstrating their ability to inflict significant damage on both military targets and critical infrastructure.
The development has led to a surge in global demand for interceptor missiles and expanded air-defense systems.
In response, Rheinmetall said it plans to introduce new air-defense effectors — a category that includes missiles, guns and laser-based systems — and expand its capabilities beyond the very short to short-range defence solutions that have been its primary focus until now.
Rheinmetall believes it is also well positioned to help replenish US missile stockpiles that are being depleted in the conflict.
“Higher spend for missile restocking and air defence is inevitable,” the company said in a presentation accompanying its results.
Analysts remain broadly optimistic
Analysts said the company’s guidance for 2026 broadly aligns with market expectations and should help reassure investors after earlier concerns about a softer outlook.
Bernstein analysts said Rheinmetall’s updated targets indicate that the company’s strong growth trajectory remains intact.
If Rheinmetall reaches the upper end of its 2026 revenue forecast of 14.5 billion euros, the implied compound annual growth rate to its 2030 target would reach around 34%.
That pace of expansion would significantly exceed that of other major European defence contractors, Bernstein noted.
Berenberg analysts said the company’s 2026 guidance was slightly weaker on operating profit but emphasized that the medium-term outlook remains supported by strong demand, particularly for air defence systems.
They also noted that the latest sales outlook is above the preliminary estimate of about 13.6 billion euros the company had previously indicated during a pre-close call with analysts last month.
With defence spending expected to rise sharply across NATO countries, Rheinmetall appears poised to benefit from a multi-year surge in military procurement across Europe and the United States.
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