Daimler cuts 2012 outlook, delays 2013 margin targets

October 26, 2012

FRANKFURT (Reuters) — Daimler AG warned it would miss its full-year profit forecast by about 1 billion euros ($1.29 billion) and delayed its 2013 return targets amid “significantly more difficult market conditions,” it said in a statement that appeared to be accidentally released.

“Due to the economic challenges, Daimler will not match the high prior-year EBIT (earnings before interest and taxes) in full-year 2012, but will still post good earnings once again,” CEO Dieter Zetsche said in a statement that was sent by e-mail today, a day earlier than scheduled.

The statement, which was dated Oct. 25, was subsequently followed up with an e-mail stating, “please ignore” adding that this was not the actual release yet.

According to the statement, EBIT dropped 2 percent to 1.92 billion euros, better than the average estimate of 1.87 billion from a Reuters poll of 12 banks and brokerages.

Sales rose 8 percent to 28.6 billion euros, helped by positive currency effects, the car maker said.

Mercedes has been losing ground to Volkswagen AG’s Audi and BMW in the luxury-car sales race as it invests in a new line of compact cars and prepares to overhaul its flagship S-Class sedan. The Daimler unit’s aging portfolio has left it vulnerable to the European debt crisis.

“In the light of the relative strength of VW and BMW, I’m simply shocked by the weakness of Daimler,” said Arndt Ellinghorst, a London-based analyst with Credit Suisse. “The management of Daimler is disappointing once more.”

Targets lowered

The company lowered its full-year earnings outlook for its divisions, with all units now forecast to remain below last year’s level. The car business is expected to contribute 4.4 billion euros in profit compared with 5.19 billion euros a year earlier. The EBIT in the trucks unit will fall to about 1.7 billion euros from 1.88 billion euros in 2011.

In a bid to reclaim the top spot in sales and profit in the luxury-car segment, Mercedes plans to cut costs under a program dubbed “Fit for Leadership.” The company, which hasn’t released details of the savings measures, intends to reduce spending by at least 1 billion euros annually, a person familiar with the matter said last week.

“We are not yet at the level that we aim to reach in the medium to long term,” Zetsche said in the statement. “We have therefore initiated appropriate measures for all divisions and are thus prepared for a difficult market environment.”

Scrapped goals

Daimler today scrapped its 2013 profitability goals. Because of “more difficult market conditions,” the margin targets for the divisions “will not be met until a later date,” the company said. Daimler aimed to achieve a 10 percent operating margin in the Mercedes-Benz cars division and an 8 percent return on sales at the trucks unit.

“They are cashing in every target for next year,” Ellinghorst said. “That’s clearly a major disappointment.”

Mercedes has also been trailing in China, where deliveries edged up 6.7 percent this year, compared with gains of more than 30 percent for BMW and Audi. To improve its fortunes, Zetsche combined two separate sales units — one for imported vehicles and one for locally made cars — into a single entity.

Daimler aims to regain the No. 1 position in the luxury-car segment by the end of the decade after falling to third last year. To catch up with Audi and BMW, Mercedes plans to introduce 10 models by 2015, including new variants of the S-Class. The company targets sales of 1.6 million Mercedes-Benz brand cars by 2015, 25 percent more than last year.

In anticipation of robust demand for its line of compact cars, Daimler has commissioned Finland’s Valmet Automotive Inc. to produce more than 100,000 Mercedes A-Class vehicles from 2013 through 2016. The sporty hatchback lured 700,000 customers into the European showrooms when it went on sale in September.

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