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Daimler Clouded By Weak Markets, Diesel, Trade Problems

Daimler Clouded By Weak Markets, Diesel, Trade Problems.

“Daimler’s P&L is a mess, with special charges dumped all over it; underlying margins are deteriorating; free cash flow is awful”.

Mercedes Benz parent Daimler announced more details of its troubled second quarter financial performance’ and analysts weren’t impressed.

On Wednesday, Daimler confirmed the warning a couple weeks ago that it had a 2nd quarter loss before interest and taxes (EBIT) of 1.6 billion euros ($1.8 billion) after a 2.6 billion euro ($2.9 billion) profit in the same period last year. Last month Daimler cut its profit forecast for the third time in 12 months.

Daimler confirmed it now expects earnings before interest and taxesin 2019 to be significantly below the prior year level, compared to a previous forecast of a result close to last year’s profit.  Provisions for an extended recall in connection with Takata airbags will increase by around 1 billion euros ($1.1 billion).

Daimler, in a meeting with analysts, explained how it saw the company’s future, and they weren’t impressed.

“Daimler’s P&L is a mess, with special charges dumped all over it; underlying margins are deteriorating; free cash flow is awful. The handover to the new management team is proving protracted, with (Ola) Kaellenius (chairman of Daimler and head of Mercedes cars) and (supervisory board member Harald) Wilhelm not planning to lay out their stall until November 2019, given the need to work on a detailed new plan for the company,” Bernstein Research analyst Max Warburton said in a report.

No focus
“The new guys aren’t even able to focus full time on building the new plan, given the endless distractions they are facing – from new regulatory challenges on diesel to increasingly complex Chinese political influences,” Warburton said.

On Tuesday China’s BAIC said it bought a 5% stake in Daimler. China’s Geely has a nearly 10% stake.

Citi Research analyst Angus Tweedie wasn’t very enthusiastic either.

Despite the scale and frequency of recent profit warnings at Daimler suggesting most of the negative news must be known we remain sellers for 2 reasons:

1) Valuation – Daimler continues to trade at a 20% premium to peers.

2) We believe there is yet more negative news to be announced at the investor day on 14/15 November where management outlines its plans to reinvigorate the business. Beyond this, while we see the recent announcement of BAIC taking a stake as supportive we do not believe it materially changes the investment case given European foreign ownership rules,” Tweedie said in a report.

Daimler earnings have been hit in formerly lucrative China by the trade war with the U.S., while demand for diesels in Europe has slumped as EU regulations make it ever more expensive to clear up emissions. Global sales have also been hit by a slowdown in auto demand.

Bernstein Research’s Warburton said it won’t be a happy summer at Daimler.   

“Given the volume of difficult stuff arriving in their in-trays, we’d assume neither Kaellenius or Wilhelm – nor their wider executive team – will be getting much of a summer break,” Warburton said.


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