Investing.com -- Rheinmetall AG’s (ETR:RHMG) stock jumped more than 7% on Wednesday following its full-year 2024 earnings report, which largely met expectations, with some areas of outperformance despite minor shortfalls in sales.
The recent price rally comes amid a broader surge in European defence spending, which has boosted investor confidence in the sector.
Increased geopolitical tensions and a growing emphasis on military modernization across Europe have driven heightened defence budgets, benefiting major contractors like Rheinmetall.
The German defence contractor reported a backlog of €55 billion and new nominations worth €27 billion for 2024, both of which fell short of the company’s earlier guidance of €60 billion and between €30 billion to €40 billion, respectively.
In early 2025, delayed key contracts, including the €3.1 billion IdZ system and the estimated €7.5 billion TAWAN contract, were approved.
Revenue for the year came in at €9.8 billion, marking a 36% year-over-year increase but coming in 2% below company consensus.
This shortfall was attributed to a one-off issue in the Weapon & Ammunition (W&A) division and continued weakness in the power systems segment.
Rheinmetall’s defence operations remained the primary growth driver, with revenues climbing across multiple divisions, including weapon & ammunition and vehicle systems. Weakness in the PS division, which recorded a decline to €2 billion, weighed on overall sales.
Despite an unfavorable product mix, Rheinmetall managed to expand its operating margin, reaching 15.2% in 2024—240 basis points higher than the previous year and above consensus estimates of 14.8%. The defence segment alone achieved a margin of 19%.
Operating free cash flow saw a significant beat, rising 31% year-over-year to €1 billion, largely due to strong prepayments on contracts and improved working capital management.
The company also announced a dividend increase to €8.10 per share, a 42% rise from the previous year, bringing the payout ratio to 39%—the upper limit of its guided range of 35% to 40%.
Rheinmetall foresees strong order momentum in 2025, targeting €30 billion in nominations, potentially reaching €40 billion. They project 25-30% sales growth, fueled by a 35-40% increase in defence revenue, balanced by flat Power Systems performance.
Margins are expected to be around 15.5%, slightly below consensus expectations of 16.2%, as ramp-up costs weigh on profitability.
However, analysts at Morgan Stanley (NYSE:MS) believe this is a temporary effect, with stronger margin expansion anticipated in 2027.
Importantly, Rheinmetall’s 2025 outlook remains subject to potential revisions later in the year, pending developments in Germany’s defence budget. A planned update is expected following further government decisions.