German defence group Rheinmetall cites contract delays in forecast miss

By Miranda Murray and Matthias Inverardi

BERLIN (Reuters) -Rheinmetall on Thursday reported second-quarter sales and profit below expectations, citing delays in German defence contract awards, but affirmed its full-year forecast on expectations for a flood of orders later in the second half.

The German defence company reported sales of 2.43 billion euros ($2.8 billion) in the three months to June, below the 2.53 billion consensus forecast according to a company-provided poll.

Shares in the maker of tanks, grenades and infantry fighting vehicles were down nearly 6% by 1057 GMT, making it the biggest loser in the DAX index of blue-chip stocks.

Analysts said the miss on the headline figures could weigh on the shares but were upbeat about Rheinmetall's outlook.

The company confirmed its 2025 sales growth guidance, as it expects more than 80 billion euros worth of orders between 2025 and the first half of 2026, primarily from the German military.

JPMorgan analysts expect the company to meaningfully raise its medium-term guidance later this year, once its investments pay off and large orders begin rolling in during the second half.

Germany, which did not have a government in place for much of the second quarter, approved exempting defence spending from debt rules in March, opening the way for Europe's largest economy to be able to borrow a total of 380 billion euros between 2025 and 2029 for defence in the budget last month.

"Our order books are full and will continue to grow in the future," said CEO Armin Papperger. "Rheinmetall is successfully on its way to becoming a global defence champion."

The company is investing in several European countries to create new capacity to meet demand in its core markets of Europe, Germany and Ukraine, Papperger added.

The order backlog reached 63.2 billion euros in the first half, up from 48.6 billion in the same period last year.

Rheinmetall continues to benefit from increased spending on defence as European countries invest in their militaries to deal with the threat posed by Russia after it invaded Ukraine in early 2022.

Quarterly operating profit of 276 million euros missed analysts' consensus, with difficulties in Rheinmetall's civilian business and costs of its new site in Weeze, Germany - where it will produce F-35 fighter jet parts - weighing on margins.

The company aims to make a decision on its flagging Power Systems division, which serves civilian industries, before the end of the year and is in talks with several interested parties.

Papperger has said that Power Systems, the only division to report a fall in profit, is no longer a core part of the group as Rheinmetall focuses on its booming military business.

($1 = 0.8569 euros)

(Reporting by Miranda Murray and Matthias Inverardi; Editing by Louise Heavens and David Holmes)