German defense company Rheinmetall lowered its 2026 sales outlook on Thursday after the German government canceled a delayed frigate program that the company had been widely expected to win.

Rheinmetall now expects sales in the range of €13.7 billion to €14.2 billion ($15.8 billion to $16.4 billion), down from €14.0 billion to €14.5 billion previously, based on a €300 million hit to its naval division.

It also cut its order book guidance to more than €100 billion, from roughly €135 billion previously, and lowered its capital expenditure target to 8%-9% of sales from 16%.

The company left its free cash flow conversion ratio and margin targets unchanged and said it remained on track for record growth.

JPMorgan analysts said they had expected the canceled frigate program to have made more of an impact beyond 2026 and said the downgrades could signal slower growth in 2027-28.

Rheinmetall had reported a nearly 70% jump in second-quarter sales to about €3.3 billion, with all business segments contributing to the rise, in an unscheduled release last month.

Its shares fell as much as 4% in early trading before paring losses to trade 1.2% down by 0745 GMT.

DENTED AMBITIONS

Rheinmetall has seen its fortunes soar with Europe’s renewed interest in building up its defenses after Russia invaded Ukraine in February 2022, with Europe’s largest ammunition maker targeting annual sales of up to €50 billion by 2030.

The company completed the acquisition in March of the warship division of German shipbuilder Luerssen as part of its ambitions to become a bigger player in the naval sector.

It has also been considering acquiring German Naval Yards Kiel and promised to reach a final decision within weeks after a rival bidder withdrew from the process last month.

The German government’s decision in June to scrap a delayed frigate program for which Rheinmetall had looked likely to secure the contract tempered the company’s upward momentum.

“In the naval business, too, we are looking to the future and are working hard to fulfil our current maritime orders as a reliable partner with a high level of expertise, and to secure new ones on the international stage as well,” said Chief Executive Armin Papperger on Thursday.