Rheinmetall Falls as Defense Arm Missed Targets: Frankfurt Mover

Rheinmetall AG fell the most in almost five years after the German maker of armored military vehicles said full-year earnings would fall short of forecasts as the defense unit missed sales and profit targets.

Shares in Dusseldorf-based Rheinmetall slumped as much as 13 percent, the biggest intraday fall since November 2008, and traded 12 percent lower at 35.05 euros as of 9:29 a.m. in Frankfurt, valuing the business at 1.4 billion euros ($1.86 billion). The stock has declined 3.5 percent this year.

Rheinmetall earnings before restructuring costs are expected to be 180 million euros to 200 million euros, compared with an earlier range of 240 million euros to 260 million euros, the company said yesterady after market close. In March, it said profit would be imparied by restructuring.

“This is effectively Rheinmetall’s third profit warning in two years and the second after the new management took over and presented its 2015 goals,” Tim Rokossa, an analyst for Deutsche Bank with a hold rating on the stock, said in a note. “This will raise concerns about these targets.”

Defense budget cuts drove the outlook revision, compounded by higher costs to execute some programs, Rheinmetall said. The munitions business was hit particularly hard with short-term demand impaired, said the maker of Fuchs armored transport vehicles and the Leopard 2 battle-tank gun.

Defense Unit

Operating profit before interest and taxes and excluding restructuring costs will be 60 million euros to 70 million euros this year at the defense unit. The previous forecast was for 130 million euros. Sales may fall 100 million euros short of a 2.4 billion-euro target, 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 yesterday.

New order bookings in the defense sector reached 1.28 billion euros in the first half, the company said, up 13 percent from a year earlier. The total excludes a 1.1 billion military truck deal with Australia that will be booked in the third quarter.

“Management still has much to prove to turn defense margins around, and potentially also needs additional restructuring charges,” Benjamin Glaeser, a London-based analyst at Berenberg with a hold rating on Rheinmetall said in a note.

The company is due to report half-year results on Aug. 9. It confirmed its targets for the automotive arm and still expects EBIT before restructuring of 140 million euros.

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