Daimler Profit Slides After Emissions Snafu Charges.
Investors Worry About Technology Costs, As Product Charge Ends.
Why Is Truck, Car, Finance Independence Taking So Long?
“But cycle worries remain an overhang for the sector and particularly given Mercedes’ strong product momentum to date”
Daimler’s profit dived 14.4 per cent in the third quarter, hit by costs of fixing diesel emissions in its older cars, while investors worried that the Mercedes car division’s impressive model replacement programme was running out of steam.
Investors were also expressing impatience with a perceived lack of progress in Daimler’s announced plan to allow the truck, car and finance divisions more independence, which could pave the way for spinoffs.
Daimler announced in October that it was preparing to consolidate its 5 businesses divisions into three separate registered companies. Mercedes Cars and Mercedes Vans would merge, as would Daimler Trucks and Daimler Buses. The third company, Daimler Financial Services, already exists. Financial Services also owns mobility services like Car2Go. A final decision requiring approval by shareholders can’t take place until 2019, Daimler said.
Daimler’s earnings before interest and taxes (EBIT) dropped to €3.46 billion in the third quarter from €4.04 billion a year earlier. Meanwhile deliveries in the 9 months rose nearly 8 per cent to 573,026, driven on by strong demand for SUVs, and sales of the new E class.
The profit margin in the third quarter was 11.1 per cent compared with the year earlier 11.8, but dropped to 9.2 per cent after including charges for fixing diesel emissions.
Barclays Equity Research was concerned about the cost of new technology and the peaking product programme than restructuring or the possible threat to residual values posed by diesel’s waning attraction.
“The big question-mark is the outlook for 2018 onwards, giving the rising costs for new technologies and peak in Mercedes products,” said Barclays analyst Kristina Church.
Church wasn’t much bothered by the perceived threat to leasing.
“But cycle worries remain an overhang for the sector and particularly given Mercedes’ strong product momentum to date. We believe management are focussed on all the right areas with their Mobility Services unit and are future-proofing the business, but we are currently less concerned by the opportunities thrown up by the new legal structure review,” Church said.
Investment researcher Jefferies was less impressed by the financial news, saying the numbers do not support Daimler’s technology and mobility ambitions.
“Market excitement about the potential break-up also looks premature and we continue to see the option of a truck listing as a sub-optimal way to improve multiples or possibly raise capital,” Jefferies analyst Philippe Houchois said.
Some investors have said Daimler needs to move faster and make the case more loudly for separating the business units, and maybe unlock significant value for shareholders. Others think Daimler may have been holding back information about the plan.
Puzzled as to why
Citi Research wondered why Daimler would spend more than €100 million on preparing for the restructuring, and then say it had no plans to divest individual divisions.
“We are puzzled as to why? The underlying objective is to have “greater customer and market focus and therefore more growth opportunities”. We can’t help but think three could potentially be more to the plan than management will say at this stage,” said Citi Research analyst Michael Tyndall.