Daimler warns 2019 profits to halve as problems deepen

Daimler warns 2019 profits to halve as problems deepen

Daimler AG's annual news conference in Stuttgart
FILE PHOTO: A Mercedes-Benz "Vision URBANETIC" concept car is seen in front of the Daimler AG logo during the company's annual news conference in Stuttgart, Germany, February 6, 2019. REUTERS/Michael Dalder

FRANKFURT: German luxury carmaker Daimler issued the latest in a procession of profit warnings on Wednesday (Jan 22), hit by costs related to the industry's diesel emissions scandal, heavy investment in electric vehicles and production problems.

The maker of Mercedes-Benz cars said earnings before interest and tax (EBIT) for last year were expected to approximately halve to €5.6 billion (US$6.2 billion) from €11.1 billion a year earlier.

It added that figure did not include an estimated €1.0-1.5 billion of costs for ongoing government and court proceedings related to an industry scandal over whether carmakers tried to cover up pollution from diesel engines.

Analysts had previously been forecasting 2019 EBIT of about €6.8 billion, according to Refinitiv Eikon data.

The profit warning is the third since Ola Kaellenius took over from long-standing Daimler CEO Dieter Zetsche in May, and the fifth in around 19 months.

German carmakers, among global leaders in diesel technology, have been caught in the crosshairs of courts and regulators after Volkswagen admitted in 2015 to using engine control devices to cheat US diesel emission tests.

Daimler's diesel pollution levels are being investigated by prosecutors in Stuttgart, Germany, where it is headquartered, as well as by the U.S. Environmental Protection Agency (EPA) and the California Air Resources Board (CARB).

Earlier this month, investors sued Daimler for US$1 billion in Germany, accusing it of concealing the use of emissions cheating software. Daimler denies wrongdoing.

The company's shares, which have fallen about 10 per cent over the last year, were down 1.5 per cent to €45.695 at 1010 GMT.

As well as tighter emissions rules, automakers are grappling with slowing demand and costly new technologies such as electric and self-driving cars.

Daimler said it expected the return on sales at its Mercedes-Benz division to slump to 4 per cent in 2019 from 7.8 per cent in 2018, and the figure to drop to 6.1 per cent from 7.2 per cent at its trucks unit.

Juergen Pieper, cars analyst at brokerage Metzler, said Mercedes' 4 per cent margin was the weakest among German carmakers.

"Daimler is not getting its problems under control fast enough. The company is in the midst of a major crisis", he said.

Others saw scope for optimism.

"Daimler looks likely to benefit from the strong momentum of upcoming product launches from 2020 onwards, which should help achieve incremental cost savings and pricing power improvement versus peers", JP Morgan said in a note to client, adding its recommendation for the stock remained "overweight".

Daimler said its profit forecast included €300 million of one-off costs for a review of its vans product portfolio, and another 300 million for the realignment of its Your Now mobility services business.

The weak earnings came despite robust sales.

The group sold 2.34 million Mercedes-Benz passenger cars in 2019 for a ninth consecutive year of record sales, putting it in pole position to retain the title of biggest-selling premium car brand.

Given the challenges facing the industry, Daimler's cost cutting programme announced in November may soon be followed by more, said NordLB analyst Frank Schwope.

"Perhaps it is time for closer cooperation or even a merger between Daimler and BMW, although there are still various individual sensitivities that stand in the way of this," he said.

Daimler is set to announce detailed full-year earnings on Feb 11.

Source: Reuters