Daimler strikes cautious tone for `extremely challenging’ 2019

Daimler forecast a profit margin of 6% to 8% for Mercedes-Benz cars in 2019. (Bloomberg pic)

STUTTGART: Daimler AG struck a cautious tone, forecasting a slight increase in profit after 2018’s down year as the maker of luxury cars fights through a US-China trade spat, slowing demand in Europe and North America, and surging expenses to develop electric vehicles.

Group revenue and earnings before interest and tax will “rise slightly” this year, the German manufacturer said at its annual results press conference on Wednesday. Nevertheless, Daimler cut its dividend for the first time in nine years as it prepares to plough even more money into new technologies.

Earnings declined in all divisions during 2018 except heavy trucks, Daimler said. Profitability in the key Mercedes-Benz Cars unit narrowed to 7.8% from 9.4% a year ago, revealing the strains of investing in major technological shifts while also battling trade wars and volatile political and economic developments.

“For Daimler, 2018 was a year of strong headwinds,” said CEO Dieter Zetsche.

“For all the divisions, it applies: a profitable business is a prerequisite for continuing to invest in new technologies and products in the future.”

The car industry has come through a difficult few months marred by trade tensions and declining sales in the world’s biggest market, China. The pressures prompted two profit warnings by Daimler last year, partly citing China’s trade spat with the US that levied additional tariffs on its Alabama-made SUVs. Since then, Mercedes cars have proved resilient in China, and deliveries of its Freightliner heavy trucks in North America increased.

Daimler is the first European automaker to report fourth-quarter earnings and map out what might be another tough year. Earlier Wednesday, Toyota Motor Corp raised its global vehicle sales forecast for the year ending in March to 10.55 million vehicles, an increase of 50,000 vehicles, helped by higher sales in Japan and Europe.

For this year, Daimler forecast a profit margin of 6% to 8% for Mercedes-Benz cars, below target levels as lucrative SUVs get overhauled and spending on electric vehicles dilute earnings.

“We cannot and will not be satisfied with this,” Zetsche said. “That’s why we have started to develop comprehensive countermeasures” with the goal of returning to target levels of 8% to 10% by 2021.

Daimler proposed a dividend of 3.25 euros per share, an 11% drop and its first since 2010, when the payout was omitted in the aftermath of the global financial crisis.

The company will also invest “a mid-three-digit million” euro amount in 2019 on creating the new group structure with three legally independent units.

Wednesday’s earnings are the last for veteran Zetsche, at the helm since 2006. Credited with a pivotal role during Daimler’s divorce from Chrysler and a successful product overhaul, ongoing investigations into diesel emissions practices have weighed on his tenure.

In May, shareholders will vote on a new corporate structure to give the cars, trucks and mobility services units more independence to accelerate decision-making. Investors have criticised the move as not going far enough to argue for a partial share sale of the trucks division.

Daimler stock closed up 1.4 % on Tuesday at 52.91 euros, valuing the company at 56.6 billion euros (US$64.6 billion) after the sector suffered major declines last year.
Attachments area