Rheinmetall’s Profit Engine Runs Hot Despite a Chilly Start to Revenue Growth

Rheinmetall's Q1 revenue fell short of expectations at €1.94B, but strong margins and a record €73B order backlog drove shares up 5.3%, as analysts focus on execution.

The defence group Rheinmetall has delivered a first-quarter performance that left analysts underwhelmed on the top line but impressed on profitability, sending shares sharply higher in a vote of confidence from the market.

Preliminary figures show revenue of roughly €1.94 billion for the three months ended March, a gain of just under 8% year-on-year. That fell well short of the €2.3 billion consensus estimate, as timing issues around deliveries weighed on the headline number. The shortfall, however, was largely shrugged off by investors, who focused instead on the group’s resilient margins and a record order backlog.

Operating profit climbed to €224 million, lifting the operating margin to 11.6% — bang in line with market expectations. The cash picture was less flattering: free cash flow from operations swung to a negative €285 million, reflecting heavy investment in new capacity and a build-up of working capital.

Management attributed the revenue miss to purely temporary factors. Pre-produced trucks destined for a German customer will not be delivered until the second quarter, while ammunition shipments from the new plant in Murcia, Spain, have been delayed. That facility, which suffered an explosion last year, is now back to full production. The company stressed that no revenue has been lost — it has simply shifted into later periods.

The order book tells a more powerful story. It swelled by nearly a third to a record €73 billion, providing a multi-year visibility that few European industrial groups can match. JPMorgan described the current weakness as a timing phenomenon and reiterated its overweight rating with a price target of €2,130. Jefferies expects new large-scale orders worth around €24 billion in the coming months, potentially including contracts for frigates and Boxer wheeled armoured vehicles.

Other analysts struck a more cautious note. AlphaValue highlighted that the sheer scale of the backlog now places a premium on execution — Rheinmetall must demonstrate it can work through its mountainous order book profitably. The DZ Bank raised its price target to €2,188, while Barclays set a fair value of €2,125. Jefferies sees the stock at €2,220.

The market response was emphatic. Shares reversed early losses to close up 5.3% at €1,442.40 on Tuesday, trimming the year-to-date decline to roughly 10%. In a separate session, the stock had gained 4.4% to €1,430.80, underscoring the volatility that has characterised the name in recent weeks.

Management is standing by its full-year guidance, targeting revenue of between €14.0 billion and €14.5 billion and an operating margin of around 19%. The group also proposed a dividend of €11.50 per share, a 42% increase from the prior year, which will be put to a vote at the virtual annual general meeting on 12 May.

Full quarterly results are due on 7 May, when investors will scrutinise the details of working capital absorption and the pace of capacity expansion. For now, the market appears willing to look past a soft quarter and bet on the long-term trajectory of Europe’s defence spending boom.