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Daimler Reports Lower Profits, Then Hit By Emissions Probe

Daimler Reports Lower Profits, Then Hit By Emissions Probe.

Earnings Cut By New-E-Class Costs, Foreign Exchange.

“we don’t believe this is the same type of issue Volkswagen has faced”

Daimler shares were shaken by a double whammy as earnings fell nine per cent, followed by news the U.S. Justice Department was investigating its diesel engines.

But investors, who have ridden a wave of success as Mercedes new models were a hit with buyers, mainly kept the faith.

Mercedes parent Daimler’s earnings before interest and tax (EBIT) fell to €2.68 billion in the first quarter from €2.93 billion in the same period last year, battered by foreign currency headwinds and ramp-up costs for the new E-Class saloon. Mercedes profit margins fell to 7.1 per cent from 9.2 per cent.

Shortly after the financial news, Daimler said it is conducting an internal investigation of its certification process for diesel exhaust emissions in the U.S. at the request of the Justice Department. A lawsuit filed by U.S. Mercedes owners in February claimed that the brand’s diesel models violated emissions standards. Later, U.S. Mercedes diesel car owners filed a new class action suit, saying the vehicles likely contained a “defeat device” to turn off a system meant to reduce polluting nitrogen oxides in its exhaust. Daimler called the class action “without merit.”

Well flagged
Citi Research wasn’t too fussed by the news, saying the lower profits had been well flagged by the company. To meet its profit targets for 2016, Daimler needed to grow EBIT 9.3 per cent for the rest of the year and raise margins by 20 basis points.

“To our minds these are imminently achievable goals. In the near term investors are likely to focus on Daimler’s emissions woes, but. We maintain our “Buy” rating,” said Citi Research analyst Michael Tyndall.

Commerzbank said the fall in Daimler shares was a good buying opportunity, and despite a fall in estimates of future profits Daimler will provide strong earnings momentum.

“Daimler is our top pick in the sector,” said Commerzbank analyst Sascha Gommel.

Morgan Stanley is a bit more worried about the possible impact of U.S. emissions problems though.

“Uncertainty over the emissions investigation now probably overshadows fundamentals and valuation at least until more clarity emerges, reducing any chances of a share price recovery from recent underperformance against the DAX and the sector itself,” Morgan Stanley analyst Harald Hendrikse said.

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