Rheinmetall cuts 2026 sales outlook by €300M after Berlin scraps F-126 frigate programme

F-126 cancellation and outlook revision

The German government under Chancellor Friedrich Merz announced in mid-June that it was cancelling the stalled F-126 frigate programme, previously handled by Dutch shipbuilder Damen and plagued by years of delays and cost overruns. Rheinmetall, which acquired Lürssen's warship division in 2025 to expand its naval footprint, had been widely regarded as the frontrunner to take over the project. The defence ministry instead selected a smaller variant offered by competitor TKMS. LesEchos reported the cancelled contract was worth approximately €15 billion for six anti-submarine warships.

Rheinmetall said on 6 August that the cancellation would reduce its 2026 revenue by up to €300 million, prompting the Düsseldorf-based company to lower its full-year sales outlook from €14.0 to €14.5 billion down to €13.7 to €14.2 billion. The revised range still represents growth of 28 to 31 percent over the €9.94 billion recorded in 2025. The company maintained its operating margin target of approximately 19 percent.

Strong first-half results

Despite the naval setback, Rheinmetall's first-half 2026 results showed substantial growth. Revenue climbed 39 percent compared to the first half of 2025, reaching €5.2 billion, while operating profit rose 74 percent to €786 million. In the second quarter alone, revenue increased 69 percent year-on-year to €3.29 billion, and the operating result more than doubled to €562 million. The Q2 operating margin reached 17.1 percent, a quarterly high. The order backlog surpassed the €80 billion mark, fueled by €11.4 billion in new contracts awarded during the quarter, including a €5.7 billion deal. The Naval Systems division, consolidated into reporting since the end of the first quarter following the Lürssen acquisition, generated €334 million in revenue in its first four months.

Papperger's response and the Arminius project

CEO Armin Papperger, speaking during the quarterly earnings call on 6 August, expressed frustration with the government's decision.

For us, it was really astonishing [...], we had indicated that we could carry out the project.

He said the company hopes to offset the losses through new national or international naval shipbuilding contracts in the long term, citing potential new frigate programmes for international customers as well as sales of minehunters and unmanned drone boats to the German military. The upcoming frigate programme he described as "a huge opportunity." Papperger also provided details on the "Arminius" project, currently under negotiation with the German defence ministry, which would equip the Bundeswehr with Boxer armoured vehicles primarily used as troop transports. He expects the vehicle deal to be worth at least €12.4 billion, with an additional €2 billion service contract.

Cash flow and market reaction

The strong revenue growth was accompanied by a negative free cash flow of minus €1.7 billion for the first half of 2026, which Rheinmetall attributed to delayed advance payments from key customers and inventory buildup. The company had already reported preliminary Q2 figures in late July, including the negative cash flow. Rheinmetall shares were down 1.28 percent at around 12:45 GMT on the Frankfurt exchange, though the stock opened slightly positive at around €1,200. Over the past year, the share price has lost roughly a third of its value, after rising sharply following Russia's invasion of Ukraine in February 2022. Goldman Sachs maintained a Buy rating with a price target of €2,300, while MWB Research recommended selling with a target of €1,050.