Anticipating Government Decisions on Significant Contracts
Rheinmetall, the German defence and automotive conglomerate, has reported a strong financial performance in the first half of 2025, despite delays in the adoption of the federal budget and the upcoming NATO summit.
Group sales increased by 24% to €4.7 billion, with a 36% rise in defence business sales. The operating result improved by 18% to €475 million, and the defence segment’s operating profit rose 20% to €464 million, with an operating margin of 12.4% in defence.
However, the company notes a slightly below previous year’s nomination level (€14 billion) due to delayed order placements following the new elections in Germany. This indicates that political delays affected some contract timings, though not demand or backlog, which remains exceptionally high at €63 billion.
In the second quarter, Rheinmetall missed revenue expectations, reporting €2.48 billion compared to the expected €2.52 billion. Earnings per share missed estimates by 21%, with a slight reduction in profit margin to 5.6%. These shortcomings were primarily attributed to political delays in order execution and federal budget adoption.
Despite these temporary setbacks, major German defence orders are anticipated in Q4 2025, expected to boost future revenues, margins, and potentially lead to an upgraded guidance.
Rheinmetall's defence business encompasses various military products, including armored transport vehicles, battle tanks, infantry fighting vehicles, air defense systems, and ammunition. The company has recently established a production facility for F-35 fuselage center sections in Weeze, North Rhine-Westphalia, for Lockheed Martin.
Furthermore, Rheinmetall is in talks with Italian defense group Leonardo about acquiring the military truck business of Iveco. The company anticipates consistently robust demand in its military business and expects to receive Bundeswehr orders by year-end, which are likely to include substantial contracts for transport, reconnaissance, and infantry fighting vehicles.
In a significant move, Rheinmetall's second pillar of business, the automotive supply business, is up for sale. A decision regarding the sale of this business is expected by year-end.
Despite the strong growth, the company's operating free cash flow fell to -€644 million in the first half, compared with -€19 million in the same period last year.
Rheinmetall's CEO, Armin Papperger, stated that the company is on its way to becoming a global defense champion. The company's supply plants in Berlin and Neuss have been, or are being, converted from civilian to military production, with further sites under review for this transition.
[1] Rheinmetall Annual Report 2025 (H1) [2] Reuters, "Rheinmetall misses Q2 revenue target, sees recovery in H2", July 23, 2025. [3] Financial Times, "Rheinmetall's defence sales surge, but political delays hit revenues", July 23, 2025. [4] Bloomberg, "Rheinmetall's Defense Business Boosts H1 Profit, but Revenue Misses Estimates", July 23, 2025.
