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Mercedes Parent Daimler Expects 2nd Quarter Loss

Mercedes Parent Daimler Expects 2nd Quarter Loss.

“It has been a difficult few weeks and will continue to be complicated”

Daimler said it will have an operating loss in the current coronavirus-hammered 2nd quarter, but for the full-year it expects its luxury carmaker Mercedes to still make more money than last year.

Daimler, which also makes trucks and buses, last week reported 1st quarter operating profit slid nearly 70% to 617 million euros ($670 million) compared with the same period last year. It brought forward the announcement because of fears bad news might leak out into the stock market prematurely.

Daimler board member Harald Wilhelm told an analysts meeting because of the recent shutdown investors should expect “negative EBIT” (earnings before interest and tax) in the second quarter. He didn’t give any details.

Daimler chairman Ola Kaellenius told the meeting virus disruption might lead to an extended downturn.

“It has been a difficult few weeks and will continue to be complicated,” Kaellenius said.

Investors reacted calmly to the news Wednesday, with the Daimler share price up nearly 1-1/2 euros at 31.69 euros.

Investment researcher Jefferies sounded relieved.

“There is nothing cheering in the auto numbers we have seen so far across the industry, but Daimler seems to have had a decent start to the first quarter with working capital better than we had feared,” Jefferies analyst Philippe Houchois said.

Daimler said it expects revenue and EBIT to fall in 2020 compared with last year but the Mercedes subsidiary will show an improvement.

Earlier this year Daimler slashed its dividend and reported net profit more than halved in 2019. The dividend was cut to 0.9 euros a share from 3.25 euros in 2018, while 2019 net profit fell to 2.7 billion euros ($3 billion) from 7.6 billion euros ($8.3 billion) the previous year. This despite Mercedes retaining its title as the world’s top selling upmarket automaker.

Challenges ahead
Citi Research also liked the way Daimler had handled its working capital, and said industrial inventories were offset by higher levels of payables. But challenges lie ahead.

“The 2nd quarter continues to sound challenging even if there are signs of China normalizing,” Citi Research analyst Angus Tweedie said.

“With performance likely to deteriorate in the 2nd quarter we remain concerned about the credit rating and the need for some form of equity injection to support net liquidity, and reiterate our “Sell” rating,” Tweedie said.

Norddeutsche Landesbank Girozentrale analyst Frank Schwope said the company remains behind the competition in eletromobility and investors worry that the damage from diesel problems might worsen. He reiterated his opinion that Daimler might be forced into a merger, as the global industdry is battered into considering soome uncomfortable options.

It might be time for Daimler to think about a merger and he pointed to 3 options.

  • German-German solution with BMW.
  • German-French-Japanese solution with the Renault-Nissan alliance
  • German-Swedish-Chinese solution with the major shareholder in Daimler, Geely and its subsidiary Volvo.

Daimler said it will launch an electric a class sedan and electric van this year.


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