Fighter jet maker Saab smashes expectations as CEO urges procurement rethink

Saab beat second-quarter earnings expectations on Friday as Europe's rearmament drive pushed the Swedish defense group's order backlog to another record high.

CEO Micael Johansson said European governments must fundamentally rethink how they buy weapons, moving away from fragmented national procurement toward long-term partnerships with industry.

It comes as European governments race to turn record defense spending pledges into military capability, with investors increasingly questioning whether industry can deliver on swelling order books.

Saab's total backlog amounted to 317.7 billion crowns in the quarter ended June, up from 197.6 billion a year ago and marking a fifth consecutive quarter of order book growth.

New order bookings in the quarter ended June were 68.4 billion Swedish crowns ($7.1 billion), above the FactSet estimates of 57.1 billion Swedish crowns, which included a Polish submarine deal worth 47 billion crowns.

It comes as European governments ramp up defense spending, driving up book orders with the region's companies, in response to Russia's growing threat and invasion of Ukraine.

U.S. President Donald Trump's push to shift the responsibility of defending Europe onto the region's own governments – and his threat to withdraw troops from the continent – has hastened this urgency.

Investors are now increasingly focusing on companies' ability to execute and deliver, as well as growing order books.

Johansson told CNBC's "Squawk Box Europe" on Friday that the first batch of a 25 billion crowns deal with Ukraine for Gripen fighter jets had been delivered and that Kyiv was "pushing hard to establish a great air force."

Saab is looking to boost its production of the jets from 15 per year to between 20 and 30, Johansson said.

"Between some 25 to 30 jets a year, that's absolutely an achievable target, and ... we can go further than that if we now get sort of partners involved in a more substantial way," he added.

Johansson also argued Europe must coordinate defense procurement and shift to long-term, continuously evolving partnerships with industry, instead of traditional one-off weapons purchases, as seen in Ukraine.

"You can have sovereign capacity, but you can also work together to create scale. It's absolutely doable."

"It's a bit slow in that direction, but we're getting there," he said, adding that this represents a new business model where 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) was 2.8 billion crowns, compared to expectations of 2.4 billion crowns.

Shares rose as much as 4.5% in early trading in Stockholm, to later pare some gains to rise 1.8%. The pan-European Stoxx 600 index was down 0.4%.

Saab, whose products range from Gripen fighter jets and submarines to missiles and advanced electronics, has seen exponential order growth 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 aircraft.

"We operate in a market with structurally growing demand and remain focused on scaling capacity, delivering to customers, and advancing new capabilities," said Johansson in a statement on Friday.

Even with an ever-growing order book, booming sales, and increasing profitability, Saab stock, like many of its peers, has taken a hit in recent months as investors question whether valuations have run ahead of the industry's ability to deliver.

European defense stocks have fallen this year.

While defense spending remains unequal among European NATO countries, most countries have made progress on increasing the means devoted to military capabilities. 

Sweden joined NATO only in 2024, citing Russia's increasing aggression and a shifting geopolitical landscape. Saab's home country has increased defense spending as a share of GDP to 2.5% from 1.2% in 2021, according to SIPRI data.