Mercedes-Benz Maker Warns on Q2 Profit

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German automaker Daimler issued a profit warning late Sunday, telling investors that an increase to its cash provision related to various sins related to the company’s diesel vehicles likely will reduce the company’s forecast for a “slightly higher” earnings before interest and taxes (EBIT) in the 2019 fiscal year. The company said that EBIT this year “is now expected to be in the magnitude” of last year.

The new EBIT estimate is €500 million below the current estimate, which was already down by 22% year over year from 2017. The company also lowered its return on sales estimate for the Mercedes-Benz van division to a decline of 2% to 4%.

The German transportation ministry on Saturday ordered Daimler to recall 60,000 diesel-powered cars in Germany that officials say were equipped with software designed to defeat emissions testing. A similar charge leveled against Volkswagen in 2015 has cost that company billions in recall costs and fines. The Daimler recall includes the company’s GLK 220 compact luxury sport utility vehicle produced between 2012 and 2015.

The Saturday recall added to Daimler’s total of some 3 million diesel-powered vehicles that already had been recalled to replace the defective software.

Former CEO Dieter Zetsche was replaced last September by Ola Källenius who, along with other German industry CEOs, is scheduled to meet Monday with Chancellor Angela Merkel to discuss the future of the country’s auto industry.

German automakers continue to face a threat from the United States of tariffs on sales of their cars in America. The U.S. president last year threatened tariffs but has put a hold on actually imposing a tariff of 10% to 25% on imported vehicles from Europe.

According to Sunday’s announcement, Daimler is increasing its provision for tinkering with the emissions systems in its car by “a high three digit million amount.” According to its 2018 annual report, Daimler already has set aside more than €14 billion for “miscellaneous” purposes, including liability and litigation expense.

The shares traded down about 4% late in the afternoon Monday on the Xetra exchange to €47.71. The stock’s 52-week range is €44.52 to €59.99, and the 12-month price target is €62.70.


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