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(Sharecast News) - Rheinmetall reaffirmed its outlook for 2025 and set out an initial growth path for 2026 on Thursday, although its shares fell sharply after investors judged the forward guidance as cautious following a strong rally in the stock.
The German defence group said it continued to expect sales growth of 30% to 35% in 2025 under its new consolidation scope, alongside an operating margin of 18.5% to 19% and cash conversion "significantly above" 40%.
Management described cash flow as "really good" and said the group expected to end the year net-debt-free, supported by sizable customer prepayments on defence contracts.
Looking ahead, Rheinmetall gave a first indication for 2026 rather than full guidance, flagging operational defence revenues of between 15bn and 16bn, including 1.3bn to 1.5bn from the Naval Vessels Lrssen (NVL) business, which was due to be consolidated for 10 months from early 2026.
The company guided for an operating margin of 18% to 20%, while noting that reported revenue would be reduced by a consolidation effect of around 12% following the deconsolidation of its automotive activities.
Rheinmetall's update weighed on sentiment, with shares falling more than 7% in Frankfurt trade.
Analysts said the midpoint of the 2026 revenue indication fell short of some market expectations after the stock's recent surge.
According to Investing.com, Kepler Cheuvreux analyst Michael Raab said the call delivered "no major news for 2025," but offered "some more granularity as to what to expect from financials in 2026."
Berenberg, however, described the 2026 guidance as weak, calling it "a surprise" with limited explanation, the Wall Street Journal reported.
Rheinmetall highlighted what it saw as a sharp acceleration in German defence contracting, forecasting around 67bn of German orders over the next four quarters.
That included the large 'Arminius' Boxer vehicle programme, where management said 37bn of orders were expected to be booked in 2026, alongside potential naval contracts worth a further 12bn to 13bn.
The group said the pipeline underpinned expectations for order intake of up to 80bn in 2026 and a year-end backlog of roughly 135bn.
It said it also expected strong growth in ammunition, which it described as its most profitable business, as new capacity came on stream in Germany, Spain and South Africa.
Management indicated ammunition revenues could rise to around 5bn in 2026, compared with about 3.5bn previously, while vehicle systems could contribute up to 6bn.
Despite near-term caution on guidance, some analysts remained constructive on the longer-term outlook.
Jefferies said Rheinmetall continued to benefit from "continued strong order intake, notably thanks to the rapidly expanding German defence budget," while also pointing to expansion in air defence, missiles and naval systems as drivers of structural growth.
At 1224 CET (1124 GMT), shares in Rheinmetall were down 7.12% in Frankfurt at 1,560.
Reporting by Josh White for Sharecast.com.