Rheinmetall Unconcerned About Potential Trump Victory, Upbeat on Outlook, CEO Says

By Cristina Gallardo

A potential victory by Donald Trump in the U.S. presidential election wouldn't harm the prospects of Rheinmetall as long as it continues to create jobs in the U.S., according to its chief executive.

Asked on a call with investors how the potential return of Trump to the White House in November could affect the German arms maker in the near term, Chief Executive Armin Papperger said he wasn't concerned.

Arkansas Governor Sarah Huckabee Sanders, an ally of the Republican candidate, reassured him in a meeting last week that as long as Rheinmetall continued to create jobs and invest in the country it would have a place in the U.S. market, the CEO said.

Rheinmetall is among the European defense companies that has benefited most from the war in Ukraine. On Thursday, it reported a 49% jump in second-quarter sales to 2.23 billion euros ($2.44 billion), as the group continues to secure a steady stream of orders for ammunition and weaponry from governments seeking to support Ukraine.

A downpour of contracts with the German armed forces boosted its backlog to a high of EUR48.64 billion as of June 30, an almost 62% increase from the previous year, while operating profit--closely watched by analysts and investors--more than doubled.

"We have never seen such growth," Papperger said, adding the company was at the beginning of an extended cycle of strong growth.

The pressure from the U.S. on its NATO allies to increase defense budgets will continue to grow, Papperger said.

Some of the group's flagship orders include components for 22 howitzers, and the largest agreement for the supply of 155mm artillery ammunition worth up to EUR8.5 billion, both for the German armed forces.

Headquartered in Duesseldorf, Rheinmetall is building new ammunition plants in countries such as Lithuania, Hungary, Romania as well as Ukraine, which Ukrainian government officials fear could become a target for Russian attack. Security concerns have also increased after a Russian plot to kill Papperger.

The manufacturer expects sales to reach the EUR10 billion mark this year, up from EUR7.18 billion in 2023. Papperger also forecast annual sales growth of around EUR2 billion in the coming years.

The company is benefiting from the modernization of the German armed forces, expected to take between 10 and 15 years. Germany is committed to spending at least 2% of gross domestic product on defense, and the CEO expects the country would continue to spend heavily on weaponry regardless of the outcome of the 2025 German federal election.

Papperger expects a stable budget for new military equipment.

"There will be support over the next 10 years, even if tomorrow the war [in Ukraine] stops," he said. "But we have to fill the stocks in Ukraine and the Ukrainians need help from the European Union and the U.S."

Papperger said a cooperation with Lockheed Martin in the U.S. to develop new GMARS rockets has an estimated market potential of EUR7 billion over the next 10 years.

The two companies will also cooperate on laser weapons, for which there is a "huge need" in the U.S. and allied countries, and that are estimated to have a market potential of at least EUR500 million, he said.

Rheinmetall also aims to sell Boxer armored fighting vehicles to countries such as Germany, U.K. and the Netherlands, he said. Boxer orders would be handled by ARTEC, a joint venture that includes Rheinmetall, and could be worth up to EUR15 billion over the next 10 years, Papperger said.

Papperger said Rheinmetall's joint venture with Leonardo to bid for future Italian government contracts for hundreds of armored vehicles could be worth up to EUR25 billion over more than a decade, more than previously disclosed, and is likely to be topped up with another contract for ammunition for the resulting vehicles worth about EUR2.5 billion.

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

(END) Dow Jones Newswires

August 08, 2024 11:20 ET (15:20 GMT)

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