Daimler Has Unexpected Loss, Plans to Cancel Dividend
Feb. 18 Daimler AG, the second-largest maker of luxury vehicles, posted an unexpected fourth-quarter loss and said it plans to cancel the annual dividend, sending the shares down the most in more than 15 months.
Spending on a reorganization at the truck division and charges stemming from disposals at the financial unit led to a 352 million-euro ($478 million) quarterly loss, Stuttgart, Germany-based Daimler said today in a statement. Analysts had predicted a profit of 254.6 million euros.
A revamped Mercedes-Benz E-Class sedan isn’t doing as well as Daimler hoped and faces tough competition from Bayerische Motoren Werke AG’s new 5-Series car, which “seems to be getting better reviews,” said Stephen Pope, chief global equity strategist at Cantor Fitzgerald in London. The firm lowered its recommendation on Daimler shares to “sell’ from “buy” today.
Daimler fell 1.55 euros, or 4.7 percent, to 31.50 euros in Frankfurt trading in the biggest drop since Nov. 6, 2008. The stock has declined 15 percent this year, valuing the manufacturer at 33.4 billion euros.
Restored Dividend Planned
The German company hasn’t canceled the dividend since at least 1999, its first full year as the combined DaimlerChrysler AG following a merger with the U.S. automaker that was dissolved in 2007.
Daimler, which paid 60 cents a share on 2008 earnings, will drop the dividend for 2009 because the company wasn’t profitable, Chief Executive Officer Dieter Zetsche said today in a Bloomberg Television interview from Stuttgart. Daimler is sticking to a policy of paying shareholders 40 percent of earnings and aims to restore dividends for 2010, he said.
The “brave but appropriate” decision to halt the dividend “foreshadows 2010 cash burn,” Adam Jonas, a London-based analyst at Morgan Stanley, said today in a research report.
Daimler’s financial services unit took a charge of 100 million euros in 2009 to exit non-auto leasing businesses. The truck unit had a charge of 340 million euros for restructuring operations in Japan and North America, while the company had expenses of 388 million euros due to lower interest rates and 164 million euros for pensions. At least 75 million euros for the trucks reorganization was charged in the fourth quarter, as was most of the financial-services expense.
Tax Writedown
The fourth-quarter loss narrowed from a year-earlier deficit of 1.53 billion euros. Earnings before interest and taxes totaled 448 million euros compared with a loss of 1.95 billion euros a year earlier, holding back the Ebit loss for the full year to 1.51 billion euros. Chief Financial Officer Bodo Uebber said today at a Stuttgart news conference that a writedown on tax assets contributed to the net loss.
Sales in the three months to Dec. 31 fell 11 percent to 21.3 billion euros. Revenue exceeded the 20.8 billion-euro average analyst estimate. Sales in 2010 will rise from last year’s 78.9 billion-euro total, though will be “significantly” less than the 98.5 billion euros posted in 2008, Daimler said.
The manufacturer, which is also the world’s largest truckmaker, said it expects to increase vehicle sales in 2010 and report Ebit exceeding 2.3 billion euros. That compares with a 2.9 billion-euro average Ebit estimate of 26 analysts.
The earnings target “isn’t that impressive,” Pope said. “They should be able to do more than that.”
Daimler slashed spending by 5.3 billion euros last year by building fewer vehicles and cutting pay in response to the recession. The cost reduction beat a 4 billion-euro target. Zetsche said he aims to keep spending unchanged this year, even as sales grow and a labor agreement on containing costs expires.
E-Class
Daimler began deliveries of the new E-Class last March and introduced a convertible variant in early 2010. The car, which overtook rival models made by BMW and Volkswagen AG’s Audi brand, will confront renewed competition when Munich-based BMW, the world’s largest luxury-car manufacturer, rolls out an overhauled 5-Series next month.
“Mercedes vehicles are good, but they aren’t good enough against an absolutely ascendant Audi and BMW,” said Simon Empson, managing director of U.K. auto Web site Broadspeed.com. Discounts on Mercedes vehicles are averaging about 12 percent to 14 percent, and the tendency is rising, he said.
Zetsche said Daimler has had “tremendous momentum” with the new E-Class. The model and the top-end S-Class, which received a facelift in 2009, are “very important pillars” for Daimler’s growth prospects in 2010, Zetsche said.
Delivery Growth
Fourth-quarter deliveries at the Mercedes-Benz Cars division, which also includes the Smart city-car brand, increased 7 percent to 303,552 cars and sport-utility vehicles. Including trucks, buses and vans, Daimler’s vehicle sales fell 8 percent to 441,038 units. That held back the full-year drop to 25 percent for a total of 1.55 million vehicles.
Daimler is investing more than 1.4 billion euros to expand its lineup of small cars. The carmaker is in talks with Renault SA, France’s second-biggest automaker, on a potential partnership to expand the Smart unit and produce components such as engines for a planned series of four compact models. Daimler intends to conclude discussions in the first half of this year.
The company doesn’t foresee an improvement in the Smart’s subcompact market soon as government sales incentives expire, Zetsche said. That segment is “not relevant” to Daimler’s group earnings-growth target, he added.
The full-year net loss was 2.64 billion euros compared with profit of 1.41 billion euros a year earlier, Daimler said. The loss was wider than analysts’ 1.86 billion-euro estimate.
Daimler extended Zetsche’s contract yesterday until the end of 2013. Weber won a similar extension and Wolfgang Bernhard was confirmed as head of production and purchasing at Mercedes-Benz.
Bernhard, who left Daimler in 2005 and returned last year to run the van division, has shown an ability to manage costs and will contribute to an “ideally positioned” management team at Mercedes-Benz, Zetsche said.
LINK:
Daimler Has Unexpected Loss, Plans to Cancel Dividend (Update4) - Bloomberg.com
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