Rheinmetall shares plunge 17% after outlook cut as military contracts stall

German defense giant Rheinmetall cut its full-year guidance late Wednesday, citing delays to military contracts and ammunition deliveries.

It marks the company's second outlook cut since August, when Germany scrapped plans to build warships in what would have been Rheinmetall's biggest order since World War II.

The defense company now expects sales to rise to around 13.2 billion euros ($14.9 billion) in 2026, down from a prior outlook range of between 13.7 billion and 14.2 billion euros. It is expected to have an operating margin of around 18.5%, down from the previously expected 19%.

Rheinmetall said it revised its 2026 guidance due to delays in the German military's Arminius project, a major German military procurement program for Boxer armored vehicles, and setbacks in artillery ammunition acceptance testing.

The Arminius contract, now expected to be commissioned next year, involves vehicles manufactured by ARTEC, a joint venture between Rheinmetall and the Franco-German defense group KNDS.

Rheinmetall shares fell over 17% in early trading, bringing year-to-date losses to about 46%.

It follows an average annual gain of 119% over the prior four years as it became one of the main beneficiaries of ramped-up military spending by European governments amid Russia's full-scale invasion of Ukraine in 2022.

RBC analysts called the announcement "clearly negative," citing concerns over the Boxer program's timing, scope and impact on medium-term guidance. They warned the news could fuel broader investor concerns about traditional defense technology.

"We suspect bears will see this negatively as part of the ongoing 'new-tech vs old-tech' sector debate," they said.

Rheinmetall said delays to the Boxer contract would also push expected advance payments into 2027, affecting its previous cash conversion target of over 40%, although it still expects positive operating free cash flow this year.

The company also flagged delays in expected fourth-quarter revenue from new business activities, particularly its partnership with Dutch defense technology firm Destinus.

The guidance cut came as the German company posted improving results, with third-quarter sales increasing 32% year-on-year to 3.15 billion euros and operating profit jumping 62% to 553 million euros.

New order intake was 2.89 billion euros, bringing its backlog to 78 billion euros by the end of the third quarter.

Despite being overshadowed by the outlook cut, Citi analysts called the third-quarter print "a strong set of Q3 results."