Renk and Steyr Boost Production Amid European Arms Spending
By Isabel Demetz, Paolo Laudani
(Reuters) -Growing military spending in Europe drove double-digit sales growth for Rheinmetall suppliers Renk and Steyr Motors in the first quarter and filled out their order books for coming quarters.
Their bloated order pipelines are similar to many defence sector peers that have been reporting solid results while flagging rising backlogs, as European governments scramble to increase defence budgets after decades of under-investment.
Renk's and Steyr's piles of orders stand between four and five times their expected revenue this year, according to an LSEG poll of analysts.
Renk CEO Alexander Sagel told Reuters that the German gearbox maker can digest the order backlog by changing the shift model at its main plant in Augsburg, rebuilding assembly lines to allow more flexibility and adjusting production at its European factories.
"We do not need to build any new plant anywhere in the world, at least for the European market," Sagel said.
LBBW analyst Stefan Maichl told Reuters that Renk's order backlog supported its growth ambitions and made planning for the future more secure.
Renk, which makes gearboxes for Leopard 2 tanks and transmissions for Bradley fighting vehicles, reported a 14% rise in its quarterly revenue.
Its smaller Austrian peer Steyr, which supplies engines to BAE Systems and the U.S. Navy Seals, saw its revenue grow by 26%.
"We are in the ramp-up phase in order to work off the high order backlog. At the same time, we are continuing to see dynamic demand," Steyr CEO Julian Cassutti said in an earnings statement.
Both companies confirmed their forecasts for the full year.
Their Frankfurt-listed shares have more than tripled in value this year, as Western nations buy supplies to help Ukraine fight Russia's invasion and strengthen their own capabilities amid fears of waning protection from the United States.
($1 = 0.8918 euros)
(Reporting by Paolo Laudani and Isabel Demetz in Gdansk, editing by Milla Nissi-Prussak)
