Daimler AG (OTCPK: DDAIF) ratcheted down second-quarter 2019 expectations for the second time in less than a month. The German automaker is now guiding to a second-quarter 2019 loss of 1.6 billion euros versus a profit of 2.6 billion euros in the same period of 2018.
Second quarter 2019 expectations
The company called out increased legal provisions for faulty Takata airbags, another increase in provisions for Mercedes-Benz diesel vehicle recalls, and a shuffling of the deck in the Mercedes-Benz Vans group as reasons for the newly lowered guidance.
From the press release, “New information lead to a revised risk assessment with regard to provisions for an extended recall in Europe and the rest of the world in connection with Takata airbags. Provisions had to be increased by around 1 billion euros.”
The release continued, “In addition, [earnings before interest and taxes] EBIT was impacted by a reassessment made today in connection with ongoing governmental and court proceedings and measures relating to Mercedes-Benz Diesel vehicles in various regions, which lead to an increase in expected expenses by around 1.6 billion euros.”
Recall, in late June the company said it would take a “high-three-digit million” hit to second quarter earnings to address ongoing legal issues surrounding diesel vehicle recalls. On June 22, 2019, Germany’s transportation ministry said that an additional 60,000 Mercedes-Benz vehicles would need to be recalled, claiming the vehicles are outfitted with software capable of manipulating emissions tests.
Lastly, the Vans division will see a 0.5 billion euro hit due to a “product portfolio review and prioritization”.
One of the few bright spots in the quarter will be Daimler Trucks, the maker of Freightliner and Western Star trucks. The division is expected to report EBIT of 0.7 billion euros, a year-over-year increase of 0.2 billion euros. Additionally, the 2019 outlook for the unit remains unchanged with return on sales expected to be in the 7 to 9 percent range.
Daimler also materially lowered its full-year 2019 outlook due to “slower product ramp ups affecting product availability throughout 2019 and lower growth in automotive markets than expected” in addition to the previously mentioned increase in second-quarter expenses.
The 2019 outlook now calls for total Group EBIT to be “significantly below prior year level.” When the company first lowered second-quarter expectations three weeks ago it maintained its full-year outlook which called for no change to the 11.1 billion euros of EBIT reported in 2018.
Shares of Daimler were off as much as 4.5 percent on the news, but have rallied back to down approximately 1 percent.
Daimler reports second quarter 2019 results on July 24.