By Cristina Gallardo

European defense groups are expected to post mixed numbers for the second quarter, due to tough comparisons with previous periods and some order delays caused by Germany's change of government.

However, the geopolitical backdrop remains supportive of the industry as European governments continue to provide their military support to Ukraine and step up defense spending.

The period was marked by the setting of North Atlantic Treaty Organization's new defense spending targets through 2035, France's plan to accelerate its military spending, Israel's conflicts with Gaza and Iran, and a review of defense priorities in the U.K.

Here is what you need to know:

WHAT TO WATCH:

--DEMAND: Demand remains robust for military equipment, especially for ground combat, missile and air-defense systems, and ammunition.

British defense-technology company QinetiQ last week posted a record order backlog and said its performance is in line with expectations. A recently published U.K. government defense strategy as well as NATO's new targets boost its confidence in long-term growth, it added.

However, Donald Trump's pressure on European governments to buy more U.S. made weapons could limit opportunities for European defense contractors just as the continent seeks to grow its defense industry.

--ORDER INTAKE:

Rheinmetall expects to report limited order intake in its second quarter due to the German government transition, which delayed some orders, the company said during a pre-close call with analysts. The group remains on track to meet its fiscal 2025 guidance, according to Jefferies analysts.

However, Rheinmetall continued to expand its list of customers buying ammunition from the German arms maker. In early July it booked an ammunition order valued in the hundreds of millions of euros from a European member of NATO, and said it expects further orders from some southeast European countries in the second half of the year. It also booked a Dutch government order for 20 manned and unmanned Ermine ground vehicles to be gifted to Ukraine.

Another recent sizeable order was Chemring's 251 million pounds contract to supply missile-defense capabilities to the U.K.

Germany's sensor-provider Hensoldt should post mixed second-quarter results due to temporary challenges, Deutsche Bank's Christophe Menard said.

Renk's Chief Executive Alexander Sagel told analysts last week that the company's second quarter was solid, but LBBW Research forecast mixed figures, with its order intake likely to have declined from a high level. Although its revenue growth is expected to be very strong, Renk's operating margin could be slightly below the previous year, with a weaker civil business acting as a brake, LBBW Research said.

Thales's order intake is forecast to reach 8.4 billion euros ($9.77 billion) in the first half, down 22% on year against a tough comparable, with second-quarter orders of 4.6 billion euros or 20% less than in the same period of the previous year, Morgan Stanley's Ross Law said.

--GUIDANCE: Saab--the Swedish manufacturer of military equipment ranging from ground combat weapons and missile systems to fighter jets and submarines--raised its full-year sales guidance last week, boosted by strong performance at its missile systems and ground combat weapons unit.

Europe's rising military budgets offer opportunities for further growth of defense contractors but analysts aren't expecting many more of them to upgrade guidance just yet. Dassault Aviation and Thales aren't expected to change their sales guidance, Jefferies analyst Chloe Lemarie said.

However, Thales could tweak its divisional forecasts, and increase its guidance for defense sales over its current estimates of between 6% and 7% growth, she added. This could be offset by weaker cybersecurity orders and some foreign-exchange headwinds, she said.

Saab's management and analysts have cautioned that the shift from defense planning and policy alignment to procurement takes time. Investors' scrutiny will now focus on whether NATO member-states deliver on their promises to boost defense spending.

Last week, QinetiQ reiterated its fiscal 2026 guidance for 3% organic revenue growth, and earnings per share growth between 15% and 20%.

U.K. defense firm Chemring stuck to its midterm revenue guidance for its often-overlooked Roke business during a briefing with analysts earlier this month. Roke's revenue should reach at least 250 million pounds by 2028, it said.

--M&A AND PARTNERSHIPS: BofA analysts expect to hear color on Rheinmetall's new strategic partnership with Anduril Industries to co-develop a range of autonomous air drones, Indra Sistemas's intention to buy Madrid-based Escribano Mechanical & Engineering, and Leonardo's talks to form a joint venture on aerostructures.

Meanwhile, Thales is holding advanced talks with U.S. defense contractor RTX to buy its stake in a French joint venture that produces air and missile defense-command and control systems, known as Thales Raytheon Systems Air and Missile Defense Command and Control SAS (TRS AMDC2).

WHEN COMPANIES ARE SCHEDULED TO REPORT:

-- Dassault Aviation: July 22

-- Indra Sistemas: July 22

-- Thales: July 23

-- BAE Systems: July 30

-- Leonardo: July 30

-- Hensoldt: July 31

-- Melrose Industries: July 31

-- Rheinmetall: August 7

-- RENK Group: August 13

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

(END) Dow Jones Newswires

July 21, 2025 03:59 ET (07:59 GMT)

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