Saab order book reaches record as defence demand lifts second quarter

Sweden’s Saab reported second-quarter order bookings of 68.4 billion Swedish crowns, or about $7.1 billion, exceeding FactSet estimates of 57.1 billion crowns as demand for military equipment lifted the defence group’s pipeline. The company’s total order backlog reached 317.7 billion crowns, compared with 197.6 billion crowns a year earlier, marking a fifth consecutive quarter of growth in the order book.

The figures underscore the commercial effect of higher European defence spending on regional suppliers. Saab, which makes the Gripen fighter jet among other military systems, has seen its contracted future work expand as governments increase procurement of defence equipment.

The quarter’s new orders included a Polish submarine contract valued at 47 billion crowns, according to the figures cited with the results. Large defence contracts can have an outsized effect on quarterly bookings because they are recorded when customers commit to purchases, while sales and profit are recognized as companies deliver equipment and services over time.

Saab also beat expectations on sales and operating profit. Revenue for the quarter came in at 25.5 billion crowns, above FactSet estimates of 23.9 billion crowns. Operating profit, measured as earnings before interest and tax, was 2.8 billion crowns, compared with analyst expectations of 2.4 billion crowns.

Chief Executive Micael Johansson said in a company statement that Saab was operating in a market with “structurally growing demand.” He said the group remained focused on expanding capacity, meeting customer deliveries and developing new capabilities.

Backlog growth points to delivery challenge

For defence manufacturers, a rising backlog signals customer demand and revenue visibility, but it also places pressure on production capacity and supply chains. Saab’s results show that order intake is growing faster than recognized sales in the quarter, increasing the amount of work the company must convert into deliveries.

The backlog total of 317.7 billion crowns is substantially larger than quarterly sales of 25.5 billion crowns, reflecting the long-cycle nature of defence programmes. Aircraft, naval systems and other advanced military equipment are typically delivered over extended periods, with manufacturing capacity, component availability and customer delivery schedules shaping the pace at which orders become revenue.

European governments have been increasing defence spending, a trend that has supported order flow for companies in the region’s defence industry. Saab’s latest results place the Swedish group among the companies benefiting from that shift, with both order intake and earnings coming in ahead of market estimates compiled by FactSet.

This story draws on original reporting from CNBC.