By Mauro Orru

Arms maker Rheinmetall said its order intake would take a hit after Germany scrapped a project to procure F126 frigates, a setback for the defense group that had hoped to bring in billions from what could have been the country's biggest class of warship since the end of World War II.

Berlin said last month that it had opted not to pursue an order for six F126 frigates from Rheinmetall for about 15.2 billion euros ($17.30 billion) due to delays and cost increases, and instead decided to purchase eight MEKO A-200 frigates from German shipbuilder TKMS.

The government had expected the first batch of frigates to be delivered in 2033, but Dutch shipbuilder DSNS couldn't hit the targeted budget and timetable, prompting Berlin to start transferring the project to Rheinmetall.

The decision marked a setback for the German defense champion whose fortunes have skyrocketed since Russia's invasion of Ukraine. The company said Thursday that the cancellation of the F126 frigate program would dent second-quarter orders, now expected to be in a low double-digit billion-euro amount compared to a prior forecast of 20 billion euros ($22.76 billion).

The projected hit comes despite strong momentum for Rheinmetall, which continues to secure orders from governments of the North Atlantic Treaty Organization as they seek to replenish their stockpiles of weapons.

In recent weeks, the group secured a contract valued at 5.7 billion euros to supply Romania with Lynx combat vehicles, Skyranger air-defense systems, medium-caliber ammunition for air defense and armored personnel carriers, two offshore patrol vessels and two diver-support vessels.

In an effort to focus entirely on its burgeoning defense business, the company last month agreed to sell its automotive business to Munich-based industrial group Aequita for a provisional price of 350 million euros. Last year, it bought German shipbuilder NVL in a bid to cash in on demand for maritime warfare.

The hit to its order intake didn't come as a surprise. MWB Research's Jens-Peter Rieck wrote in a note to clients that the F126 frigate cancellation stripped Rheinmetall of the crown jewel that justified the NVL acquisition and that it should revise the unit's business projections. Rheinmetall's naval segment was expected to generate revenue of about 5 billion euros in 2030, but Rieck lowered that estimate to about 3 billion euros to reflect the loss of the F126 program.

The company said it was assessing whether the cancellation would affect full-year guidance, and that it would provide more details when it reports second-quarter earnings on Aug. 6. Rheinmetall is forecasting sales between 14 billion euros and 14.5 billion euros this year, warning of a hit of up to 300 million euros if it fails to mitigate the impact.

Write to Mauro Orru at mauro.orru@wsj.com