Rheinmetall reported a softer-than-expected outlook for profit margin and free cash flow on Wednesday, driving its shares more than seven per cent lower as investors focus on how the German company performs as a pure defence player.
For 2026, Rheinmetall said it expects an operating profit margin of around 19 per cent, slightly above the 18.5 per cent it achieved last year but below expectations for 19.6 per cent in a company-provided poll of analysts' forecasts.
Rheinmetall also forecast free cash flow conversion of more than 40 per cent of operating profit (EBIT), which was short of market expectations of around 70 to 90 per cent. The company did not immediately provide any further details.
Its 2026 sales guidance of 14 billion to 14.5 billion euros ($16.29 billion-$16.88 billion), after 2025 sales of 9.9 billion euros, was roughly in line with the Vara poll.
Shares in Rheinmetall were down 7.4 per cent at 12:37 GMT.
"Investors are wholly focused on execution and Rheinmetall's ability to convert a compelling order book into sales and EBITA in line with market expectations," said JPM analysts, adding that they assumed Rheinmetall was being conservative on the timing of deposits.
The company plans to sell its civilian automotive business before the second half and concentrate solely on providing land, air, space and naval systems for the armed forces to meet higher demand linked to the wars in Ukraine and Iran.
It is "inevitable" that countries will spend more on air defence for the Iran war, Rheinmetall said, adding that it is well-positioned to help replenish US inventories.
CEO Armin Papperger said growth momentum was also strong across other NATO countries, including Germany, and Ukraine.
The company expects its order backlog to more than double to 135 billion euros ($157.07 billion) this year from 2025's record of 63.8 billion euros.
Papperger, who sees mergers and acquisitions as key to meeting demand, said the German Naval Yards Kiel (GNYK) shipyard could be an option as the company expands into the naval sector.
Rheinmetall is also in talks with Airbus about a joint venture that should be signed soon with Germany's OHB for a military satellite system, he said.
Rheinmetall plans to propose a dividend of 11.50 euros, up from 8.10 euros.
(Reporting by Miranda Murray and Matthias Inverardi, Editing by Linda Pasquini, Louise Heavens and Alexander Smith)
