Saab The Swedish defense group’s profits beat expectations for the second quarter, as Europe’s rearmament drive pushed the Swedish defense group’s order book to a new record high.
CEO Micael Johansson said European governments must fundamentally rethink how they buy weapons, moving away from fragmented national purchases and towards long-term partnerships with industry.
It comes as European governments struggle to turn their defense spending commitments into military capabilities, with investors increasingly questioning whether the industry can meet its expanding order books.
Saab’s total order book stood at 317.7 billion crowns in the quarter ended June., compared to 197.6 billion a year ago and marking a fifth consecutive quarter of growth in the order book.
New orders booked in the quarter ended June totaled 68.4 billion Swedish crowns ($7.1 billion), above FactSet estimates of 57.1 billion Swedish crowns, which included a Polish submarine contract worth 47 billion crowns.
It comes as European governments increase their defense spending, leading to a surge in book orders from businesses across the region, in response to the growing threat from Russia and the invasion of Ukraine.
US President Donald Trump’s efforts to shift responsibility for Europe’s defense to regional governments – and his threat to withdraw troops from the continent – have accelerated this emergency.
Investors are now increasingly focused on companies’ ability to execute and deliver, as well as the growth of order books.
A new defense procurement model?Johansson told CNBC’s “Squawk Box Europe” on Friday that the first batch of a 25 billion crown deal with Ukraine for Gripen fighter jets had been delivered and that kyiv was “doing its best to establish a large air force.”
Saab is looking to increase its jet production from 15 a year to between 20 and 30, Johansson said.
“Between 25 and 30 aircraft per year, it is a completely achievable objective, and (…) we can go further if we now involve partners in a more substantial way,” he added.
Johansson also argued that Europe needs to coordinate its defense purchases and move toward long-term, evolving partnerships with industry, rather than traditional, one-off arms purchases, as seen in Ukraine.
“You can have sovereign capability, but you can also work together to create scale. It’s definitely doable.”
“It’s a little slow in that direction, but we’re getting there,” he said, adding that it’s a new business model in which not everything is bought from a specification.
Second-quarter sales came in at 25.5 billion crowns, beating FactSet estimates of 23.9 billion crowns, while operating profit (EBIT) came in at 2.8 billion crowns, compared to an expectation of 2.4 billion crowns.
Shares rose as much as 4.5% in early trading in Stockholm, only to pare some gains to rise 1.8%. The pan-European Stoxx 600 the index was down 0.4%.
Saab, whose products range from Gripen fighter jets and submarines to missiles and advanced electronics, has seen exponential growth in orders since Russia’s full-scale invasion of Ukraine in early 2022.
Earlier this month, NATO Secretary-General Mark Rutte said the alliance would order up to 10 spy planes from Saab, in a deal that could be worth nearly $5 billion, based on the price of the GlobalEye plane.
“We operate in a market with structurally growing demand and remain focused on increasing capacity, delivering to customers and developing new capacities,” Johansson said in a statement on Friday.
Even with a steadily growing order book, booming sales and growing profitability, Saab stock, like many of its peers, has taken a hit in recent months as investors question whether valuations have outpaced the sector’s ability to deliver on its promises.
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European defense stocks have fallen this year.
Even if defense spending remains unequal among European NATO countries, most countries have made progress in increasing the resources devoted to military capabilities.
Sweden did not join NATO until 2024, citing Russia’s growing aggression and the changing geopolitical landscape. Saab’s home country increased its defense spending as a share of GDP from 1.2% in 2021 to 2.5%, according to SIPRI data.