Why This German Auto Giant Just Cut Estimates Again
For the second time in four months, German car and truck maker Daimler AG (NASDAQOTH: DDAIF) has cut its full-year profit estimates. Daimler, the parent company of Mercedes-Benz and Freightliner trucks, now expects its full-year operating profit to fall by more than 10% from its 2017 result due to increased expenses related to government crackdowns on the emissions from diesel engines.
Ahead of its full third-quarter earnings report, Daimler also warned that its third-quarter operating profit fell 27% from the year-ago period.
Sagging demand for buses is just one of several factors that led Daimler to cut its 2018 guidance. Image source: Daimler AG.
Daimler's guidance cut: The details
In a statement dated Oct. 19, Daimler lowered its 2018 pre-tax earnings expectations for two of its five business units, and for the company overall.
Daimler now expects its 2018 earnings before interest and tax (EBIT, or operating profit) at its Mercedes-Benz Cars unit (the luxury-vehicle brand) to be "significantly below" the 9.2 billion euros it earned in 2017. (Its prior guidance called for the unit's EBIT to be "slightly lower" than 2017.)
Full-year EBIT at Mercedes-Benz Vans, its Mercedes-brand commercial-vehicle unit, will be significantly lower than its 2017 result of 1.18 billion euros. (That's unchanged from its prior guidance.)
Full-year EBIT at Daimler Buses, which makes commercial and school buses under several brands, will be "significantly below" its 2017 result of 243 million euros. (Prior guidance: "Roughly equal" to 2017.)
Full-year EBIT at Daimler Trucks, which makes medium and heavy trucks under several brands, will be "significantly above" its 2017 result of 2.38 billion euros. (That's unchanged from prior guidance.)
Full-year EBIT at Daimler Financial Services will be roughly equal to the 1.97 billion euros it earned in 2017. (Prior guidance: "Significantly above" 2017's result.)
As a result, Daimler now expects its overall 2018 EBIT to be "significantly below" its 2017 result of 14.68 billion euros. Its prior guidance had called for its full-year EBIT to be "slightly lower" than 2017's.
What Daimler said about its third-quarter result
Daimler also warned about its third-quarter earnings, releasing preliminary EBIT results that it said were "significantly below market expectations."
Mercedes-Benz Cars: 1.37 billion euros (Q3 2017: 2.105 billion euros).
Daimler Trucks: 850 million euros (Q3 2017: 614 million euros).
Mercedes-Benz Vans: a loss of 93 million euros (Q3 2017: a profit of 214 million euros).
Daimler Buses: 30 million euros (Q3 2017: 32 million euros).
Daimler Financial Services: 392 million euros (Q3 2017: 508 million euros).
As a result, Daimler's overall third-quarter EBIT was 2.488 billion euros, down 27% from the 3.409 billion euros it earned in Q3 2017.
Will other automakers follow Daimler's cuts?
This is the second time that Daimler has revised its 2018 full-year guidance downwards. The first cuts, in June, were a response to concerns about trade disputes between the U.S. and other countries. Daimler builds some Mercedes-Benz SUVs in Alabama; a portion of those are exported from the U.S. to other markets.
Daimler's June guidance cuts were the first by a global automaker this year. But rising commodity costs, concerns about tariffs, the costs of complying with stricter diesel-emissions rules, and slowing sales have put pressure on most of its rivals. BMW AG, Ford Motor Company, and General Motors have all revised their 2018 guidance downwards since Daimler's June statement.
What's next for Daimler?
Daimler will deliver its full third-third-quarter earnings report on Thursday, Oct. 25.
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John Rosevear owns shares of F and GM. The Motley Fool recommends BAMXF and F. The Motley Fool has a disclosure policy.
