Daimler warns on profit again, blames diesel and recall costs

By Reuters Last updated Jul 12, 2019

The Mercedes emblem is seen on a Vision Mercedes-Maybach Ultimate Luxury show car ahead of the Daimler annual shareholder meeting in Berlin, Germany, May 22, 2019. REUTERS/Hannibal Hanschke

FRANKFURT (Reuters) – Luxury carmaker Daimler (DE:DAIGn) cut its profit forecast for the fourth time in 13 months on Friday, as it set aside more money to cover a regulatory crackdown on diesel emissions and vehicle recalls related to Takata airbags.

The German maker of Mercedes-Benz cars said it would make a second-quarter operating loss and that 2019 results would be “significantly” lower than last year, compared with its previous forecast for a broadly unchanged performance.

It also blamed lower-than-predicted growth in automotive markets, as well as slower product ramp-ups that have affected availability this year.

The warning is the second since Ola Kaellenius took over from long-standing Chief Executive Dieter Zetsche in May.

“Looks like the new management team’s intention is to fully clean up and address key issues in the company,” Evercore ISI analysts wrote in a note. “Whether this is the final warning for the year remains to be seen.”

Daimler shares fell as much as 4.5% to a six-month low of 44.54 euros. At 0905 GMT, the stock, which has dropped about 22% in the past three months, was down 1.4%.

Carmakers have been grappling with a crackdown on diesel emissions since 2015, when Germany’s Volkswagen (DE:VOWG_p) admitted to cheating in U.S. pollution tests on diesel engines.

The pressure has come at a time when the industry is also having to invest heavily in electric and self-driving vehicles, cope with slowing growth in China, weak markets in Europe and a rise in global trade tensions.

Q2 OPERATING LOSS

Daimler said it expected to take an extra 1.6 billion euros hit related to “ongoing governmental and court proceedings and measures relating to Mercedes-Benz Diesel vehicles in various regions.” It did not give further details.

It also said provisions related to an extended recall connected to Takata airbags would increase by around 1 billion euros, and a review of its Mercedes-Benz vans product portfolio would hit second-quarter earnings by 500 million euros.

A result, it forecast a second-quarter loss before interest and taxes of 1.6 billion euros ($1.80 billion), compared with a 2.6 billion profit in the same period last year.

Daimler also said its free cash flow for the second quarter would be below the same period last year, and that for the full- year it was no longer be expected to be above that of 2018.

Daimler’s warning came after auto suppliers Johnson Electric Holdings (HK:0179) andSensirion (S:SENSI) slashed their earnings forecasts on Thursday, blaming a slowdown in car sales and pessimism about the prospects of a Chinese car sector recovery.

In May, German competitor BMW (DE:BMWG) warned on profits, citing higher than expected investments, while Volkswagen said the return on sales at its passenger cars division would come in at the lower end of its target.

Sales of Mercedes-Benz cars fell 7 percent in the first quarter in part due to manufacturing bottlenecks for the A-Class compact car in Aguascalientes, Mexico, the Mercedes-Benz Van in Charleston, South Carolina, and the Mercedes-Benz GLE sports utility vehicle in Tuscaloosa, Alabama.

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