Daimler Sees Growth Stalling on North America Truck Market WoesBy
Revenue seen flat after previous forecast for slight rise
‘Risks ahead’ for Daimler’s profit, Barclays analyst says
Daimler AG lowered its 2016 revenue forecast citing weaker demand for trucks in North America, sparking concern that the automaker’s profit is set to whither.
Daimler predicted sales this year to be flat, backing off a previous forecast for a slight rise. The Stuttgart, Germany-based company stuck to a forecast of earnings this year being “slightly” higher than 2015’s 13.8 billion euros ($15 billion). Worries about the future overshadowed a 10 percent rise in Daimler’s third-quarter profit operating profit to 4.01 billion euros, with the stock falling as much as 3.2 percent.
“There remain risks ahead” for Mercedes’s margins and an extended truck slump, Kristina Church, a London-based analyst with Barclays, said in a note. “So while today’s results are strong, there is a strong potential that this is the peak of Daimler’s performance for future quarters.”
Even though Mercedes is on track to overtake BMW’s namesake brand in global sales for the first time in more than a decade, the automaker is under pressure to spend to develop self-driving and electric-vehicle technologies. At the same time, Daimler, also the world’s largest maker of heavy-duty vehicles, is battling with declining demand in key truck markets. The company said pricing competition was on the rise in Europe and predicted that the market in North America would fall 15 percent this year. It said there is no turnaround in sight for Brazil’s commercial-vehicle sector.
Daimler shares fell to as low as 63.90 euros and were down 2.7 percent to 64.21 euros at 10:42 a.m. in Frankfurt trading. The stock has tumbled 17 percent this year, valuing the company at 68.6 billion euros.
Earnings at Daimler’s truck division, which cut its profit forecast in May because of lower demand in the U.S. and the Middle East, tumbled 37 percent to 510 million euros. That pushed the adjusted return on sales to 6.5 percent, below its 8 percent target. Truck deliveries dropped 24 percent to 97,100 vehicles in the quarter, prompting Daimler to reduce output in markets like Brazil.
“We need to consider further efficiency measures in the trucks business,” Chief Financial Officer Bodo Uebber said on a call with reporters, noting flexible work arrangements in key plants in Germany. “We have a margin target of 8 percent and will continue to discuss measures to get there.”
Peers are also suffering. Volvo AB, the world’s second-largest truckmaker, reported a 4.7 percent drop in third-quarter earnings burdened by the downturn in the U.S., where Volvo owns the Mack brand, a rival to Daimler’s Freightliner. Volvo said it would make further adjustments to production in North America as inventories remain too high.
Mercedes, meanwhile, is reaping the rewards from years of refreshing and expanding its vehicle portfolio. Adjusted operating profit at the unit, which includes the urban-focused Smart brand, surged 23 percent to 2.66 billion euros in the third quarter, and its return on sales widened to 11.4 percent from 10.4 percent a year earlier. Deliveries of Mercedes cars jumped 12 percent in the first nine months of 2016, bolstered by a 30 percent surge in China helped by new SUVs like the sporty coupe versions of the GLC and GLE.
“Daimler’s turnaround of the Mercedes brand has been exceptional, but we feel that this is well understood and leaves little room for positive surprises,” said Arndt Ellinghorst, a London-based analyst with Evercore ISI.