Investor Confidence Shaken by Leonardo’s Persistent Cash Flow Concerns

Despite posting impressive operational metrics, Leonardo's shares continue to face significant downward pressure as market participants express growing unease about the company's negative free cash flow position. The divergence between strong fundamental performance and investor sentiment highlights underlying concerns about the aerospace and defense contractor's financial management.

The Italian defense and aviation conglomerate delivered what appeared to be stellar third-quarter 2025 results, with several key indicators showing substantial improvement. New orders surged by 23.4 percent to reach €18.2 billion, while the company's order backlog expanded to a massive €47.3 billion—representing more than two and a half years of production capacity.

Additional operational metrics demonstrated robust performance:
- Revenue increased by 11.3 percent to €13.4 billion
- EBITA climbed 18.9 percent to €945 million
- EBIT margin strengthened from 6.4 to 7.0 percent
- Net debt declined by 25.9 percent

Nevertheless, the market response proved negative, with the stock declining more than two percent following the earnings release.

The Core Concern: Cash Generation Challenges

The primary source of investor apprehension centers on Leonardo's operational free cash flow, which remained deeply negative at -€426 million. Although this figure represents a 22.5 percent improvement compared to the previous year, the continued cash outflow has triggered alarm bells among analysts and shareholders alike.

Should investors sell immediately? Or is it worth buying LeonardoADR?

Management's credibility faces a crucial test as CEO Roberto Cingolani reaffirmed full-year guidance, projecting free cash flow between €920 and €980 million by year-end. This forecast appears ambitious given the current cash flow deficit, creating skepticism about the company's ability to meet these targets.

Strategic Initiatives and Portfolio Management

Behind the scenes, Leonardo is implementing several strategic maneuvers to reposition the business. The company aims to finalize a partnership in the Aerostructures division before the year concludes, while simultaneously increasing executive exchanges between its European and United States operations.

In a strategic capital allocation move, Leonardo recently divested 9.4 percent of its stake in Avio to fully exercise its subscription rights during the engine manufacturer's capital increase. This transaction reduces Leonardo's holding to approximately 19 percent while freeing up capital for other purposes.

The critical question remains whether these measures will catalyze a turnaround in investor perception. While strategic foundations are being laid, market skepticism persists. Until Leonardo demonstrates sustained positive cash flow generation, its shares will likely continue facing headwinds—regardless of record-breaking operational performance.