German arms maker Rheinmetall said it sees this year’s sales growing by as much as 45% as it reported 2025 revenue growing 29% year-over-year, missing expectations.

It also said it was in a “prime position to help the US replenish their missile stockpiles” used in the war in Iran, such as supplying critical solid rocket motors.

In a presentation to accompany earnings on Wednesday, the company said “higher spend for missile restocking and air defence” was “inevitable.”

It comes as defense companies are expected to be on the receiving end of governments’ hiked spending on military capabilities, amid increased demand due to the wars in Ukraine and Iran. Rheinmetall expects its order backlog to more than double to 135 billion euros this year.

“The tense security situation underpins the promising position of the Group, whose products are playing an increasingly important role for the increase in defence capabilities in Germany and its partner countries,” Rheinmetall said.

The defense giant, Germany’s seventh-largest company by market value, issued its 2026 outlook, which it had hinted at during a preclose call in early February.

Group sales are expected to grow by between 40% and 45% to between 14 billion ($16.26 billion) and 14.5 billion euros. Operating result margin is expected to be around 19%, up from 18.5% in 2025. Jefferies analysts called the guidance “realistic but soft.”

“The world is changing rapidly, and Rheinmetall is well prepared,” said CEO Armin Papperger in a statement.

“With our products, we will have a significant share in the increasing equipment spend of the armed forces and deliver what modern armed forces need in the 21st century.”

Shares fell 5.2% in early trading on Wednesday while the pan-European Stoxx 600 index was down 0.7%.

Sales grew by 29% over the full year to 9.94 billion euros ($11.56 billion), missing expectations of 10.53 billion euros, according LSEG estimates.

Earnings before tax and interest came in at 1.68 billion euros, compared with estimates of 1.75 billion euros, while the order backlog reached a record high of 63.8 billion euros, a 36% jump from the previous year. 

“As budget approvals resumed toward year‑end and defence spending picked up across Europe – particularly in Germany – we expect delayed programmes to convert into contracts, supporting a rebound in nominations and reinforcing the company’s already elevated backlog,” noted Morningstar analyst Loredana Muharremi ahead of the print. 

In February, the company indicated sales for this year would come in at between 13.2 billion and 14.1 billion euros, and EBIT between 2.4 billion and 2.8 billion euros, both more than 10% below expectations. Shares subsequently fell 6.5%.

Barclays analysts in February called the share move following the indicated guidance “a marked over-reaction,” saying that “expectations are high, and shares continue to be very sensitive to any information that comes out.”

Noting some confusion over the like-for-like numbers this year, given recent changes to the business structure, the analysts said that weapon and ammunition growth will remain elevated, and there is scope for its naval business to be resilient, too. 

“From a structural perspective we think nothing has really changed here: the backlog growth in 2026 will be material.”

Rheinmetall shares have risen about 540% over the past three years, as a leading provider of land systems and ammunition in Europe.

Gains, however, have moderated over the past year as some investors question whether shares have reached their full value and if growth can be sustained long-term. Coming into Wednesday trading, the stock was up just 3.4% year-to-date. 

Rheinmetall and other defense firms like Britain’s Bae Systems and Italy’s Leonardo are viewed as well-placed to capitalize on hiked spending by European governments over the next five years against a backdrop of the Russia-Ukraine war.

Rheinmetall is looking to sell its civilian automotive to focus purely on meeting demand for its defence business. It’s also now active in the naval sector following its acquisition of shipbuilder Naval Vessels Lürssen, which closed in February.

Shares of defense companies, including Rheinmetall, initially spiked after the U.S. and Israel launched attacks on Iran on Feb. 28, killing its Supreme Leader, Ayatollah Ali Khamenei. It raised fears that the attacks would develop into a full-blown war engulfing the entire Middle East region, which would eventually lead to more demand for military equipment.

Global defense stocks jumped on Monday as investors reacted to a dramatic military escalation in the Middle East over the weekend.

The sector was a rare bright spot amid a broader market sell-off triggered by fears of a wider regional conflict.

Germany’s Hensoldt and Britain’s BAE Systems were among the top performers in the Stoxx 600, both up around 4%. Defense names Thales, Renk, and Leonardo rose between 4% and 1%, paring earlier gains, while the broader Stoxx 600 index fell more than 1%, touching a two-week low.

Stateside, U.S. firms Lockheed Martin and Northrop Grumman each rose more than 5% in premarket trading. Futures tracking the S&P 500 were down 1.1%.

With South Korean markets closed Monday, regional activity in Asia-Pacific defense sector was somewhat muted. Japan’s defense heavyweights Mitsubishi Heavy Industries and IHI rose about 3% each, while Singapore’s ST Engineering climbed 2.8%.

The moves come after the U.S. and Israel launched widespread attacks on Iran over the weekend that killed Iranian Supreme Leader Ayatollah Ali Khamenei, ending his 36-year rule. Retaliatory strikes by Iran against U.S. bases in the Middle East killed three U.S. service members.

Prospects of an escalation also led oil prices and energy companies’ shares to surge.

“It’s very much one of uncertainty at the moment that investors are grappling with,” said Patrick O’Donnell, Chief Investment Strategist at Omnis Investments.

“Equity markets are a little bit more uncertain about just how long this is going to drag on, for the implication for both growth and inflation that it will have the longer that it goes on,” O’Donnell told CNBC’s “Squawk Box Europe” on Monday.

“Really, it’s a question of… what’s the duration of this conflict?”

The conflict with Iran entered a third day on Monday, with U.S. President Donald Trump warning of further American casualties and saying the conflict could last for up to four weeks. 

In June last year, the U.S. and Israel launched air strikes that damaged three Iranian nuclear sites.

Carl Bildt, former Prime Minister of Sweden and co-chair of ECFR’s Council, said it was expected that Iran would strike back at the American military facilities in the Gulf region, “but now it seems like they are striking other targets across the Gulf as well.”

“That is surprising, but also highly disturbing, because, of course, the stability of the Gulf countries is important to us all, important to the global economy, important to the region,” he said.

European defense companies must take a stronger lead on collaborating to help the continent become independent of the U.S. security umbrella, Leonardo‘s CEO told CNBC.

Speaking with CNBC’s “Squawk Box Europe” on Wednesday after Leonardo’s annual results statement, Roberto Cingolani said European defense companies have “all the capabilities and technical skills” and should not wait for governments to fix the sector, which he warned was “fragmented.”

Companies should take the lead in a process of “aggregation”, which European governments would follow, he said, adding that this approach “pays a lot” and helps enable companies to become “better, faster, more profitable.”

He pointed to Leonardo’s partnership with the U.K.’s BAE Systems and Japan’s Mitsubishi Heavy Industries as co-founders of the Global Combat Air Programme (GCAP) to jointly develop the Tempest stealth fighter.  

Leonardo has also developed joint agreements with German defense giant Rheinmetall for land defense systems, and with Turkish drone maker Baykar, he said.

Last October, Leonardo also unveiled plans for a combined space and satellite company with Airbus and Thales to rival Elon Musk’s Starlink.

“I’m firmly convinced nobody can make it on their own,” Cingolani told CNBC. “We need to deploy synergies, we need to understand joining forces in a competitive industry like defense is fundamental to be successful, to be fast in responding to the needs of our societies.”

U.S. President Donald Trump’s bid to annex Greenland contributed to fractures in the NATO alliance, as the war in Ukraine focuses attention on Europe’s defense.

His comments came after Leonardo reported an 18% annual increase in core profits — topping 1.75 billion euros ($2.1 billion) — in its latest earnings statement on Wednesday.

New orders rose 14.5% last year, to 23.8 billion euros, powered by its aeronautics division, as net debt sat at 1 billion euros — a 44% decrease for the Rome-headquartered, Milan-listed company.

Its shares finished Wednesday’s session 3.5% down after the earnings.