Daimler warns on full-year Mercedes profit

STUTTGART/FRANKFURT Thu Sep 20, 2012 3:00pm EDT

A shareholder arrives to a Daimler AG annual shareholder meeting in Berlin, April 4, 2012. REUTERS/Fabrizio Bensch

A shareholder arrives to a Daimler AG annual shareholder meeting in Berlin, April 4, 2012.

Credit: Reuters/Fabrizio Bensch

STUTTGART/FRANKFURT (Reuters) - Daimler (DAIGn.DE) warned that profit would slip at its flagship Mercedes-Benz Cars division this year due to a deteriorating market in Europe and China, spooking investors in German rivals including BMW (BMWG.DE) and Volkswagen (VOWG_p.DE).

"We are gearing up for a challenging environment," Chief Executive Dieter Zetsche told reporters in Stuttgart.

Shares in both Daimler and BMW fell more than 3 percent amid fears that a broader China contagion could infect other premium brands and expose them to factors such as falling prices and excessive inventory.

German automakers have so far remained immune to the sales slump hollowing out profits at many Western mass car manufacturers.

But VW's Porsche brand said on Wednesday that it would build fewer cars next year, reduce investments and cut costs to combat weaker markets.

Although key Mercedes markets such as Germany have begun to contract only since the start of the third quarter, Daimler reassured investors in late July that it still expected its cars business to achieve flat earnings this year.

"Daimler's warning today reaffirms its status as the most unlucky of the German OEMs (manufacturers). No other German automaker seems as prone to misfortune and misses," wrote Bernstein analyst Max Warburton, who had predicted in June that Daimler would be forced to cut its earnings guidance.

Mercedes suffers from far more significant problems in China than its competitors, which Zetsche has partly blamed on their local sales organization. China sales grew only 3 percent last month, whereas BMW sold 38 percent more cars and Audi 24 percent more.

Commerzbank analyst Daniel Schwarz said Daimler missed a golden opportunity in July to cut its profit target when most were expecting one.

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"It would have been more clever had management used this freebie from the markets to guide towards a more cautious full-year forecast," he said.

Credit Suisse, long a critic of Daimler's management, raised questions about its executive team.

"In light of ongoing disappointments, we view investor concerns about management as the biggest factor holding back a better share price performance," the bank said.

Zetsche said earnings before interest and tax (EBIT) at the luxury unit would fall short of last year's 5.2 billion euros (US$6.79 billion) rather than match it.

Second-half EBIT at the Mercedes-Benz Cars unit will fall below the first-half result, when it earned 2.57 billion euros, the chief executive added. This implies a shortfall of at least 60 million euros for the full year.

Zetsche, who reaffirmed full-year forecasts for the entire group, said the business environment in the European market was becoming increasingly difficult.

The carmaker would use a package of measures to counter the slump, he added, amid a significant increase in competitive pressures in China, a major source of profits for German luxury brands in recent years due to surging sales of high-priced cars like the Mercedes-Benz flagship S-Class saloon.

The package aims for savings of around 1 billion euros, the Financial Times Deutschland reported citing company sources, in an advance copy of a story to be published on Friday.

The Stuttgart-based company said in July that it expected group EBIT from its ongoing business this year to be around the same amount as the 9 billion euros it earned in 2011. ($1 = 0.7658 euros)

(Additional reporting by Andreas Cremer in Berlin; Editing by Andrew Heavens and David Cowell)

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