Rheinmetall Posts Soaring Sales, Shrugs off Political Instability Concerns — 2nd Update

By Cristina Gallardo

Rheinmetall's sales soared in the third quarter as it consolidated its place as one of Europe's main ammunition and weapons suppliers, and shrugged off the impact of political changes in Germany and U.S.

The German arms maker said Thursday that for the three months to Sept. 30, sales rose by 39.5% on year to 2.45 billion euros ($2.63 billion), beating a consensus estimate of 2.42 billion euros provided by the company.

"We are experiencing growth like we have never seen before in the group," said Chief Executive Armin Papperger, who has agreed to stay at the helm of the company until at least 2030.

The company's operating result--closely watched by analysts and investors--jumped to 302 million euros from 198 million euros, beating a consensus estimate of 185.2 million euros provided by Rheinmetall. This growth was entirely driven by the company's defense activities, while the civilian business stayed flat. Its operating earnings margin stood at 12.3% in the third quarter.

Germany, which is modernizing its armed forces, continued to grow in importance as a market for the company. On-year sales growth in the country rose by 6 percentage points to 30% in the first nine months of 2024, the company said.

Rheinmetall faces more near-term uncertainty than other European defense stocks due to the collapse of the German coalition government on Wednesday night, and Donald Trump's promise to end the war in Ukraine by his inauguration as U.S. president, J.P. Morgan analyst David Perry said.

A change of government in Berlin could have significant implications for Germany's future defense spending and support for Ukraine, two important markets for Rheinmetall, Perry noted.

But CEO Papperger said in a call with investors Thursday afternoon that he isn't anticipating any near-term negative impacts from the collapse of the German government, beyond some potential delays of four to eight weeks for some order intakes, as the coalition had already reached a preliminary deal on a draft budget for 2025.

While acknowledging that the group faces some short-term uncertainty from Trump's return to the White House, Papperger said Rheinmentall's growth prospects in the U.S. remain intact after the election. He said the Republican president-elect is expected to put "big pressure" on European NATO members to increase their defense spending to 3% of GDP, which would boost Rheinmetall's long-term growth.

The company has projects in countries including the U.S., the U.K., Italy, and Ukraine--where it is building ammunition plants--he added. This includes a new artillery factory in the U.K., which should be up and running by the end of 2025, and a future military maritime drone co-developed with the Franco-British joint venture MBDA, he said.

Papperger warned that some major contracts are still under negotiation with the German and Spanish governments and might shift to 2025, but said the company's pipeline contains large orders that will ensure sales growth in the coming years.

The group reiterated its expectation of sales reaching the 10 billion-euro mark for the first time in 2024, and raised its operating margin forecast to around 15%, from a previous range of 14% to 15%.

Rheinmetall's order backlog jumped to 51.9 billion euros as of Sept. 30, a 41% increase on year. The backlog at the company's vehicle-systems division alone grew by 37% to 2.53 billion euros as Rheinmetall received significant orders for military trucks and heavy weapon carriers.

As Ukraine's war with Russia rumbles on, Rheinmetall's weapon and ammunition sales reached a record 1.55 billion euros in the first nine months of the year as the group continued to supply artillery systems to Germany and Ukraine.

Net profit rose to 135 million euros in the third quarter from 102 million euros a year prior, missing a consensus estimate published by Alpha Value of 189.80 million euros.

Rheinmetall shares rose 7.3% to 532 euros in afternoon trade in Berlin. The stock has increased 85% in the year to date.

Write to Cristina Gallardo at cristina.gallardo@wsj.com