Is this a good time to be producing military hardware?

Hey, we spend $1 trillion a YEAR on defense. So don't tell me we aren't at war. We are always at war. Every once in a while and have to be reminded. Hello!

Arms Maker Rheinmetall Forecasts Record Sales, Profit Growth Amid Rising Geopolitical Tensions

By Mauro Orru, WSJ

Updated March 14, 2024

Rheinmetall expects sales and profit margins will continue to grow this year as the Ukraine and Israel-Hamas wars show little sign of abating and governments ramp up spending on military hardware.

The German arms maker said Thursday that sales should climb to around 10 billion euros ($10.95 billion) this year from the EUR7.18 billion reported for 2023. Rheinmetall expects an operating margin between 14% and 15%, above the 12.8% it posted for last year. Sales guidance is above analysts’ EUR9.64 billion projection, while the operating margin is within expectations of 14.5%.

The company’s sales forecast marks an improvement of roughly EUR2.82 billion on year and the first time in its history that sales are expected to reach the EUR10 billion mark, signaling confidence among Rheinmetall management that geopolitical tensions will continue to translate into orders in the coming months.

“A new decade of security policy has begun,” Chief Executive Armin Papperger said. “We are investing massively, building new plants and significantly increasing our personnel.”

Rheinmetall, best known for its armored vehicles and munitions production, emerged as a key beneficiary of Russia’s invasion of Ukraine in February 2022, securing a steady stream of orders from members of the North Atlantic Treaty Organization seeking to replenish their stockpiles after diverting significant caches of weapons to Kyiv.

In the fourth quarter alone, the group signed two contracts valued at about EUR860 million in total to modernize air-defense systems in Austria and Romania. Meanwhile, orders for ammunition continued to pour in, including one valued at more than EUR300 million to supply multiple-rocket launcher ammunition to an undisclosed European NATO member.

Rheinmetall’s weapon and ammunition division reported sales of EUR1.76 billion for 2023 as a whole, while the group’s vehicle systems business—which includes military wheeled and tracked vehicles—contributed EUR2.61 billion in sales. Rheinmetall’s order backlog reached EUR38.29 billion at the end of December.

The volume of orders shows demand for ammunition remains resilient after more than two years into Russia’s invasion of Ukraine. In a deal completed last year, Rheinmetall acquired Expal Munitions in Spain in an effort to boost production.

Meanwhile, the stock continues to climb. Shares were up about 4% at EUR438.00 on Thursday morning, giving Rheinmetall a market value of roughly EUR18.35 billion, according to FactSet. The stock traded at roughly EUR95.00 in the days prior to Russia’s invasion of Ukraine in February 2022, and at roughly EUR235.00 before the Israel-Hamas war broke out in October 2023.

Rheinmetall’s net profit increased to EUR535 million last year from EUR474 million in 2022. Operating profit—more closely watched by analysts and investors—rose to EUR918 million from EUR769 million.

Analysts had forecast annual sales of EUR7.31 billion on a net profit of EUR558.6 million, an operating profit of EUR922.8 million and a 12.6% operating margin, according to a Vara Research consensus based on estimates from 12 analysts.

The group said it would propose a 2023 dividend of EUR5.70 a share at its annual general meeting on May 14 compared with the EUR4.30 a share it paid for the previous year.

“The course is set for further growth and increasing profitability,” Papperger said.