Rheinmetall Crashes Most In Months After Guidance Cut (Again) On Military Ramp-Up Risk

Rheinmetall AG shares plunged the most since late June in European trading after the German defense manufacturer slashed its annual sales forecast for the second time in months. Berenberg analysts pointed out that "Weapon & Ammunition drives most of the guidance cut."The company, which makes tanks and armored vehicles, artillery, ammunition, air-defense systems and military electronics, now expects 2026 revenue of about $14.8 billion, down from its previous forecast of $15.37 billion to $15.93 billion. The operating margin forecast was also pared down to 18.5% from 19%. A guidance cut in August followed Germany's cancellation of orders for six F126 frigates.Berenberg defense analyst George McWhirter provided a first-take analysis of the earnings release: em>Weapon & Ammunition drives most of the guidance cut: Rheinmetall's Q3 release this morning provides more detail following the Q3 pre-release and full-year guidance downgrade yesterday evening. Weapon & Ammunition drives most of the cut to the full-year guidance, with the remainder attributed to Vehicle Systems. There is no updated order intake guidance provided. The downgrade highlights the execution and order intake risk, stemming from the significant ramp-up in defence programmes to 2030, which poses a risk to medium-term estimates, in our view. Key details to look out for on the conference call at 1pm UK time (2pm CET) include the company's updated estimate on the timing and size of the Arminius contract award, as well as the company's Q4 order intake expectations. We expect the shares to underperform.VS and W&A weaker in Q3: Q3 revenue increased by 32% to €3,149m, 3.2% below Vara consensus; the miss was driven by Vehicle Systems (VS) and Weapons & Ammunition (W&A). VS revenue increased 9.6% yoy to €1,467m (5.3% below consensus), and W&A revenue increased 37.3% yoy to €949m (5.1% behind consensus). This weakness was offset by beats in other divisions; Air Defence (AD) revenue grew 64.9% to €254m (6.6% ahead of consensus), Digital Systems (DS) grew 38.7% to €509m (3.1% ahead of consensus) and Naval Systems (NS) revenue of €345m was 13.7% ahead of consensus.Air Defence drives Q3 EBIT beat: Q3 operating profit increased 53.6% to €553m (4.1% above consensus), equating to a margin of 17.5% (up by 270bp yoy). VS and W&A were weaker again; VS rose 13.7% to €191m (2.4% below consensus), while W&A grew 35.6% to €217m (11.4% below consensus). Basic EPS pre-PPA from continuing operations increased by 62.1% yoy to €6.42, -7.2% below consensus. Operating FCF was -€82m (consensus: €123m), reflecting continued build-up of inventories and investment. Rheinmetall Nomination fell by 25% yoy to €2,893m. The total order backlog, including framework contracts, fell sequentially to €78.0bn versus €80.5bn at H1.Lowered FY 2026 EBIT guidance 8% below consensus: Full-year guidance was lowered yesterday evening. The revenue guidance was lowered by 5% at the mid-point to €13.2bn (5% below consensus). The majority of the cut stems from W&A (€500m cut at the mid-point). The VS revenue guidance has also been lowered by €100m at the mid-point. The operating margin guidance has also been lowered to 18.5% from 19.0%, implying operating profit of €2,442m (8% below consensus). The driver is a c1ppt cut to the W&A operating profit margin guidance to 28-29%, and guidance for a c12% margin in VS (previously: 12-13%). Positive FCF is still expected for the year (consensus: €2,236m), but the previous guidance of >40% cash conversion has not been reiterated. The updated full-year guidance implies 25% growth yoy in Q4 revenue to c€4,824m, and 5% growth yoy in operating profit to €1,103m, equating to a Q4 operating profit margin of 22.9% (-410bp yoy). The updated FCF guidance implies an inflow of above c€1.7bn in Q4 to reach positive territory, versus c€2,008m in Q4 2025.The second outlook cut in months briefly triggered a trading halt in Frankfurt. Shares plunged more than 18%, pushing the stock to a 52-week low. Much of the blame for the earnings cut centered on delays in its Boxer armored vehicle program. In Europe and the US, defense stocks tracked by Goldman were hammered on Wednesday after the Democratic Party's sweep in the US midterms raised concerns that a rearmament supercycle could be derailed.According to Bloomberg data, 24 analysts are "Buy" rated on the stock, while 5 hold "Neutral" ratings, and zero sell. The Goldman US Defense index has slumped toward 2026 lows amid fears that Democrats will slash the military budget next year. ... and how will the West meet the massive surge in demand for arms driven by Ukraine and US demands if Democrats are expected to slash budgets?