Defense sector earnings show legacy weapons still drive rearmament growth

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Defense sector earnings growth

Highlights

Lockheed Martin's missiles business posted a 24% Q3 revenue increase and RTX won multibillion-dollar contracts for established missile systems.
Renk saw a 46% rise in military vehicle orders in the first nine months, while Rheinmetall's air defense division posted 63% revenue growth amid project delays.
Analysts expect structural defense spending growth to persist in Europe despite stock volatility, as governments address long-term capability gaps and geopolitical uncertainty.

Results highlight overlap between legacy systems and new technology

As reported by CNBC, recent earnings from major U.S. and European defense companies show that conventional weapons are still underpinning year-on-year growth while newer capabilities such as autonomous systems, counter-drone tools and advanced sensors gain momentum.

Lockheed Martin reported a 24% rise in third-quarter revenue from its missiles business, while RTX secured multibillion-dollar contracts for established missile systems. In Europe, German supplier Renk said orders in its military vehicle business climbed 46% in the first nine months of the year.

The latest figures also suggest the line between legacy equipment and emerging defense technology is becoming less distinct. Hensoldt reported a 52% increase in revenue from its optronics business, and its chief financial officer told CNBC much of that growth came from conventional military equipment including tanks and armored vehicles. Rheinmetall's air defense division, which includes counter-drone systems, posted 63% revenue growth even as the broader company lowered its full-year outlook because of project delays.

Spending outlook remains supported by structural demand

Analysts say drones are increasingly transforming traditional platforms rather than replacing them outright, with tanks and other systems being integrated into connected, data-driven battlefield networks. Morningstar said that shift is expanding the market for established defense groups instead of displacing them.

Over the past five years, and since Russia's full-scale invasion of Ukraine in early 2022, defense contractors have seen order books swell as governments raise military budgets. Analysts largely view the rearmament cycle as structural, arguing that even an end to wars in Ukraine and Iran would not derail the longer-term spending trend.

Europe remains under pressure to rebuild military capacity after decades of underfunding, especially amid uncertainty over U.S. security guarantees and Russia's next move. Defense stocks have recently come under pressure on concerns that Democratic U.S. midterm victories could constrain American military spending, but TD Cowen analyst Roman Schweizer told CNBC that the geopolitical backdrop has not materially changed.

Morningstar analyst Loredana Muharremi told CNBC that Wednesday's weakness in European defense stocks was largely driven by sentiment. She said some investors may see a greater chance of stronger U.S. backing for Europe, but added that Europe is still expected to maintain its spending plans because closing capability gaps and building industrial capacity will take years.

Our earlier article on HeiTech Padu’s MyIMMs contract extension explained how Malaysia is keeping its legacy immigration system running through a new two-year maintenance deal, even as the country transitions to the NIISe platform. We noted that the extension timeline overlaps with the planned nationwide NIISe rollout, underscoring how critical services often rely on established systems during multi-year technology upgrades.

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