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Daimler Warns Trade Turmoil Will Hit Profits

Daimler Warns Trade Turmoil Will Hit Profits

“As an industry rule, usually the first profit warning is not the last”

Mercedes Benz parent company Daimler warned that its profits might be hit by a combination of factors including the possibility of a trade war between the U.S. China and Europe, and the mounting costs of meeting CO2 emissions regulations now being hampered by the decline in diesel sales.

Daimler warned that its 2018 operating profit would be slightly below last year’s.

Investors worried that this might the start of an avalanche of profit problems across the industry and auto stocks dived across the board. A week after the news, no other company had warned about its profits.

Daimler also warned that profits from its vans and buses divisions would be coming under pressure.

Investment bank UBS said it was surprised about Daimler’s China fears, in which the situation was less than clear.

Reuters Breaking Views columnist Liam Proud wasn’t convinced of the need for a profit warning.

“The question for investors is whether Daimler’s stance is a responsible attempt to get out in front of the problem, or a “dog ate my homework” distraction from other shortcomings,” Proud said.

Proud also pointed to the fact that the trade war kerfuffle was currently just noise and reflecting negotiating stances. He reckoned Daimler might be in more trouble from compliance with the new European so-called real world fuel efficiency tests.

Where’s the echo?
Investment researcher Evercore ISI worried that the warning might be echoed by other car makers.

“As an industry rule, usually the first profit warning is not the last. We must wait to see. Until global headwinds abate, we see investors with little appetite to buy global auto stocks in general, and we batten down the hatches for what could be a volatile summer,” Evercore ISI analyst Arndt Ellinghorst said.

In 2017, Mercedes-Benz net profit rose 24 per cent to a record €10.9 billion and in February forecast a slight growth in earnings for 2018.  Mercedes’ profit margin rose to 9.7 per cent in 2017 from 9.1 per cent in 2016.

Investors have been hoping Daimler may finally decide to spin-off its truck division by the end of this year.


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