Daimler issues third profit warning in a year as risks mount

Daimler’s profit forecast is reduced for the third time in a year due to higher provisions. (Reuters pic)

FRANKFURT: Daimler AG cut its profit forecast for the third time in a year, this time blaming the burden of handling longstanding proceedings around diesel emissions a month after a new guard took the helm at the world’s biggest luxury carmaker.

The German manufacturer is facing investigations in Europe and the US over allegedly excessive pollution from its diesel vehicles. German authorities last year slapped Daimler with recalls and the company agreed to software upgrades for millions of cars in Europe, while escaping fines so far.

The company boosted provisions to deal with governmental proceedings and diesel measures by a “high” three-digit million euro amount. This will cut Daimler’s full-year profit forecast to level with last year, according to a stock filing late Sunday.

The additional burden will hit second-quarter earnings, and full-year profit before interest and tax is now forecast to be “in the magnitude of the previous year,” after targeting slightly higher earnings in 2019. The Stuttgart-based automaker had already warned of an extremely challenging business environment amid trade woes and slowing economic growth.

Guidance cut
Daimler’s latest guidance cut, following two profit warnings related to trade, new emissions tests in Europe and a legal dispute on air conditioning coolant last year, marks a bumpy start for new Chief Executive Officer Ola Kallenius and Chief Financial Officer Harald Wilhelm.

Their veteran predecessors Dieter Zetsche and Bodo Uebber had outlined plans for “comprehensive countermeasures” earlier this year to restore profitability with cost cuts. The manufacturer has so far given little away on that push and the financial fallout of its diesel-engine woes remains difficult to predict.

Global automakers are wrestling with increasing regulatory scrutiny and pressure on earnings amid record development expenses to roll out electric and self-driving vehicles. Governments have stepped up their oversight on diesel emission in wake Volkswagen AG’s 2015 cheating to dupe tests in 11 million diesel vehicles worldwide. The scandal has so far cost the world’s biggest carmaker 30 billion euros (US$34 billion) in fines and provisions.

Daimler rattling investors again comes at an inopportune time. Last month, shareholders approved a new corporate structure that will give its divisions for cars, trucks and mobility services more independence. Some investors and analysts have criticised the revamp as not going far enough, urging management to consider more sweeping changes, including a separate listing for the sprawling trucks division, a step German rival Volkswagen AG is planning to finalise in the coming week.

Daimler said Sunday the return on sales at its struggling vans unit is expected to be minus 2% to minus 4%. The division swung to a surprise loss in the first quarter as plans to produce a Mercedes-Benz pickup truck in South America derailed.

Mandatory recall
Meanwhile, Germany’s Federal Motor Transport Authority has recently issued a mandatory recall for about 40,000 Mercedes-Benz GLK SUV with diesel engines due to illegal software functions to skirt emissions, according to a company spokesman. He declined to comment on a connection to the profit warning.

German authorities already slapped Daimler with a recall of 774,000 diesel cars in Europe last June over the use of prohibited devices regulating their emissions. The company continues to claim a clean-engine record.