Rheinmetall Halves Defense Profit Forecast as Sales Slow

Rheinmetall AG (RHM), a maker of armored military vehicles, halved its estimate for full-year operating profit at its defense unit as sales fell short of plans.

Operating profit before interest and taxes and excluding restructuring costs will be between 60 million euros and 70 million euros this year at the unit, the Dusseldorf, Germany-based company said in a statement. The previous forecast was for 130 million euros. Sales may fall 100 million euros short of a 2.4 billion-euro target, Rheinmetall said.

“The main reason lies in budget cuts in key customer countries,” the company said. The munitions business was hit particularly hard with short-term demand failing to meet expectations, according to Rheinmetall, which makes Fuchs armored transport vehicles and the Leopard 2 tanks gun.

Rheinmetall shares have advanced 10 percent this year and declined 1.06 percent to 40.05 euros in Frankfurt trading before the company revised its outlook after market close.

Group-wide earnings before restructuring costs are expected to be between 180 million euros and 200 million euros, Rheinmetall said. That compares with an earlier range of between 240 million euros and 260 million euros. Costs to deliver on some defense programs also are likely to rise more than anticipated, Rheinmetall said.

In March, Rheinmetall announced restructuring measures expected to trim 2013 profit to generate savings as high as 70 million euros from 2015. Company-wide restructuring costs this year may reach as much as 85 million euros, the company said.

New order bookings in the defense sector reached 1.3 billion euros in the first half, the company said. The total excludes a 1.1 billion military truck deal with Australia that will be booked in the third quarter.

The automotive sector will meet its forecast after “good business growth” in the second quarter, according to Rheinmetall. Sales should reach 2.4 billion euros to 2.5 billion euros and earnings before interest and taxes before restructuring costs are estimated at 140 million euros.

To contact the reporter on this story: Robert Wall in London at rwall6@bloomberg.net

To contact the editor responsible for this story: Benedikt Kammel at bkammel@bloomberg.net

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