Daimler warns of second quarter earnings significantly below expectations

Luxury carmaker Daimler warned investors on Friday that it expected a second-quarter loss, saying an increase in provisions for an extended recall in connection with Takata airbags was partly to blame.

The carmaker warned investors that it expected a second-quarter loss before interest and taxes of 1.6 billion euros (£1.4 billion) after a 2.6 billion profit posted in the year earlier period, sending shares 2.5% lower at 0715 GMT.

The news came after Daimler in June cut its profit forecast for the third time in 12 months.

Daimler said it now expects group earnings before interest and taxes (EBIT) to be significantly below the prior year level, compared to a previous guidance of EBIT of the same magnitude as a year earlier.

Provisions for an extended recall in connection with Takata airbags will increase by around 1 billion euros, Daimler said.

The carmaker also took a hit of 1.6 billion euros following a reassessment made in connection with ongoing governmental and court proceedings and measures relating to Mercedes-Benz diesel vehicles.

“A decision by the Board of Management in the context of the product portfolio review and prioritisation, which was taken today, will affect earnings of the Mercedes-Benz Vans division in the second quarter (of) 2019 by around 0.5 billion euros,” Daimler added.

Daimler also said lower-than-predicted growth in the automotive markets had an impact, as did slower product ramp-ups that had affected availability throughout this year.

Sales of Mercedes-Benz cars fell 7 percent in the first quarter in part due to manufacturing bottlenecks for the A-Class compact car in Aguascalientes, Mexico, the Mercedes-Benz Van in Charleston, South Carolina, and the Mercedes-Benz GLE sports utility vehicle in Tuscaloosa, Alabama.

Daimler’s announcement came after auto suppliers Johnson Electric Holdings and Sensirion slashed their earnings forecasts on Thursday, blaming a slowdown in car sales and pessimism about the prospects of a Chinese car sector recovery.

Carmakers have been grappling with a crackdown on diesel emissions since 2015, when Germany’s Volkswagen  admitted to cheating in U.S. pollution tests on diesel engines.

The pressure has come at a time when the industry is also having to invest heavily in electric and self-driving vehicles, cope with slowing growth in China, weak markets in Europe and a rise in global trade tensions.

In May, German competitor BMW warned on profits, citing higher than expected investments, while Volkswagen said the return on sales at its passenger cars division would come in at the lower end of its target.