Rheinmetall Trims 2026 Guidance After Cancelled Warship Project

Rheinmetall on Thursday trimmed its 2026 guidance after a cancelled project to make large warships for the German government fell through earlier this year.

The defense company now sees full-year sales in the range of 13.7 billion euros to 14.2 billion euros ($15.8 billion to $15.4 billion), 300 million euros lower than previous guidance.

It came as the company's sales grew 39% and profits grew 74% in the first half of the year.

Shares were volatile during early trading, with the stock initially opening about 3% lower. It then reversed course to trade up 2%. It was last seen hovering just below the flatline.

Sales came in at 5.2 billion euros over the period, driven by higher deliveries of military vehicles, ammunition, and air-defense systems, alongside a 334 million-euro contribution from its newly acquired naval division.

"We have achieved record growth and are well on the way to meeting our annual targets," CEO Armin Papperger said in a statement.

In March, Rheinmetall said it was targeting between 40% and 45% sales growth in 2026, as it expected to benefit hugely from governments restocking ammunition due to wars in Ukraine and Iran. At the time, it said it was in a "prime position to help the US replenish their missile stockpiles."

On Tuesday, Reuters reported that the U.S. had used virtually all of its long-range precision missiles during the Iran war, citing unnamed sources.

Rheinmetall and other European defense companies have seen massive order growth since Russia's full-scale invasion of Ukraine in 2022, which has been reflected in the companies' stock prices.

Rheinmetall booked new orders worth 14.9 billion euros in the six months ended June, contributing to an 80.5 billion euros order backlog.

Cash flow dropped to negative 1.6 million euros, which the company attributed to a shift in advance payments, inventory build-up, and high levels of investment activity.

The defense giant has been one of the main beneficiaries of Germany hiking its defense spending. It makes ammunition and missiles, heavy weapons, and land systems like military tanks. More recently, it entered the naval business with the acquisition of Naval Vessels Lürssen, which was completed earlier this year for an undisclosed sum.

But over the past few months, investors have started questioning whether valuations have run ahead of the defense industry's ability to ramp up, amid ever-growing order books in an industry known for delays and cost overrides.

While Rheinmetall shares are still up over 1,000% over the past five years, they were down 25% coming into Thursday trading. It's a similar pattern for European peers BAE Systems , Saab , Thales , and others.

Smaller German peer Renk also reported earnings early Thursday, booking its strongest-ever quarterly order intake, lifting its backlog by 30% in the first half of the year to 7.4 billion euros. It maintained its guidance.

Investors had a wake-up call in June as Germany scrapped its program to buy six massive F126 warships, in which Rheinmetall was expected to become the lead contractor. It reminded investors that governments can, and will, change their minds, and contributed to shifting focus to companies' ability to deliver, rather than only securing more orders.

At the time, Rheinmetall stock plunged nearly 19%, and it also weighed heavily on peers as worries spilled into the sector.