Rheinmetall shares slide as investors question growth outlook after second guidance cut

By Maria Rugamer

Nov 5 (Reuters) - Rheinmetall shares fell 13% on Thursday, the biggest decline in the STOXX 600, after the German defence group cut its outlook for a second time in three months, fuelling concerns about its ability to deliver on growth targets tied to Europe’s rearmament drive.

The company cut its 2026 sales forecast to about €13.2 billion ($14.9 billion) from a previous range of €13.7 billion to 14.2 billion and lowered its operating margin target to about 18.5% from around 19%.

The company said revenue and advance payments linked to Germany’s Arminius Boxer vehicle programme would move into next year and that slower batch approvals would delay artillery ammunition revenue. It also said not all expected revenue from newer activities, including cooperation with Dutch missile maker Destinus, would materialise in 2026.

Chief Executive Armin Papperger said in August that Rheinmetall’s share of an initial Arminius order could amount to about €12.4 billion and that the company expected an advance payment worth more than €3 billion.

EXECUTION QUESTIONS EMERGE

While Rheinmetall blamed the downgrade on the delayed Arminius award and ammunition approval bottlenecks, investors appeared focused on broader concerns around execution and cash generation.

Order intake totalled €2.89 billion in the third quarter, below sales of €3.15 billion, while operating free cash flow was negative €82 million. Rheinmetall also dropped its target for a cash conversion rate above 40%.

"The Boxer contract seems not to be the whole story," a local trader said, pointing to weak order intake, negative free cash flow and the lack of revised backlog guidance.

Analysts at Jefferies said they were surprised by the size of the outlook cut so late in the year and noted Rheinmetall had yet to provide revised order guidance despite the Arminius delay.

The selloff came despite a strong quarter in which sales rose to €3.15 billion from €2.31 billion a year earlier and operating profit increased 62% to €553 million.

Rheinmetall’s order book remains among the largest in the European defence sector and demand from rearming European governments remains strong. The latest warning instead raised questions over how quickly the company can convert that demand into revenue, cash flow and programme deliveries.

($1 = 0.8913 euros)