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Another profit warning hits Daimler share price

Another profit warning hits Daimler share price.

“These warnings are terrible for auto valuations. They come at a time when the industry is facing its largest emission challenge in history”

Daimler’s share price dived nearly 3% after the Mercedes Benz parent company cut its profit forecast to take account of its diesel transgressions. 

Daimler said 2nd quarter profits would take a “high three-digit-million” hit after the company was found to have used software in some diesel engines which masked actual noxious emissions. This is the 3rd profit warning since 2018. Daimler said operating profit for 2019 will be close to last year’s 11.1 billion euros ($12.6 billion), compared with the previous prediction of slightly higher earnings.

Analysts reckoned the hit would range between 600 to 800 million euros ($683 million and $911 million) split abvout 2/3rds vans to 1/3 Mercedes cars.

Citi Research said despite the warning is still sees risks to 2020’s earnings because of what it called a multitude of cyclical and structural issues and historic accounting practices.

In the short-term the major earnings risk seems to relate to the auto division and the delay to the GLE (SUV) launch which will likely limit the mix benefit management has previously guided to. More structurally we believe auto margins need to fall to the 5-6% level as the incoming management team faces up to historic capitalized development costs hitting the P&L, the costs of electrification and a less favourable consumer credit and volume outlook,” Citi Research analyst Angus Tweedie said.

“In light of this, we believe the key debate with investors should be having is around the trajectory of the earnings decline rather than the ultimate destination,” he said.

General dilemma
Investment researcher Evercore ISI said Daimler’s general dilemma was likely to be shared by other big automakers.

“These warnings are terrible for auto valuations across the board. They come at a time when the industry is facing its largest emission challenge in history. Mercedes alone needs to improve fuel efficiency in EU by 22% (by 2021). We estimate total penalty risks of about 2.7 billion euros ($3.1 billion) and costs to comply of 1.73 billion euros ($2.0 billion).

And it’s not just new CO2 regulations that threaten to undermine the automotive industry. Germany’s Center for Automotive Research (CAR) 

has said the world car market is about to take its biggest hit since the financial crisis of 2008, with sales diving more than 4 million in 2019.

The fall, triggered by U.S. sanctions policy and led by a huge fall in China’s sales, will extend over four years and be exacerbated by the CO2 regulations and the challenges this implies from the enforced take up of electric vehicles in Europe.

“The year 2019 will be more stressful  for the auto industry worldwide than in 2009. According to our more conservative forecast, vehicle sales worldwide will decline by more than 4 million new cars in 2019. Globally this is twice as big a decline as in the midst of the global financial crisis,” CAR said in a recent report.

By mid-morning in Europe, the Daimler share price was down 3.75% at 47.38 euros.


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