Daimler gloom deepens with fourth profit warning this year

German carmaker Daimler has warned on profits for the fourth time this year after being forced to make further provisions to deal with a regulatory crackdown on alleged manipulations of diesel emissions.

Despite having already warned on profits on June 23rd, the Mercedes-Benz maker said it had uncovered new information that would make its earnings before interest and tax for the second quarter of the year even lower than it guided for last month and "significantly below market expectations".

Warnings

The warning is the latest sign of trouble in Germany's vast auto sector and comes amid signs of cooling growth in the euro zone's powerhouse economy. It poses a further test for new chief executive Ola Kallenius, who took over earlier this year from longtime boss Dieter Zetsche.

Daimler’s shares dropped 3 per cent in early Frankfurt trading and dragged down other European automotive stocks with the broad Stoxx 600 auto index sliding 1.4 per cent.

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While carmakers globally are facing a squeeze from falling sales in the US and China, Daimler has been hit particularly hard by a number of factors. The company has been hobbled by the global trade war, because it ships vehicles from the US to China, while also being hit by the decline in demand for diesel fuel across the UK and Europe

Daimler said on Friday that it would report a €1.6 billion loss for the second quarter, down from earnings before interest and tax of €2.6 billion for the same period in 2018. Its Mercedes car division made a €700 million loss, compared with almost €2 billion of profit a year earlier, while its van division fell to a €2billion loss, against a €200 million profit in the same quarter a year earlier.

Arndt Ellinghorst, analyst at Evercore ISI, said: “It looks like the new management team’s intention is to fully clean up and address key issues in the company. Some call it ‘to throw in the kitchen sink’. Well Daimler just threw in the dining room table, the fridge and the polished silver.”

Daimler also downgraded annual outlook, saying profits would be “significantly lower” than last year, having previously said the results would be comparable. The company said that global car sales and availability of some of its vehicles because of difficulties in ramping up production would hurt it.

Expenses

In addition, the carmaker said that, since June 23rd, it had reassessed the financial risks from court proceedings and governmental measures relating to Mercedes diesel vehicles in multiple regions, which “led to an increase in expected expenses by around €1.6bn”.

The issues stem from mandatory recalls and possible fines over allegations that its vehicles contain software that lower emissions in certain conditions found in laboratory tests.

The company previously said it continued to co-operate with regulators over the issue but would appeal against any recall decision because it considered the emissions control systems found in its vehicles legal.

Daimler had also found “new information leading to a revised risk assessment” of an extended global recall of faulty car airbags made by Japan’s Takata, adding another €1 billion of provisions. It also said profits were lowered by €500 million from the falling performance of the company’s vans division.

Margins in the Mercedes-Benz car unit were expected to be 3-5 per cent this year, down from 6-8 per cent, while its vans division will have margins of minus 15-17 per cent, against previous expectations of minus 2-4 per cent. – Copyright The Financial Times Limited 2019