Daimler hurt by production delays at Mercedes, China slowdown

FRANKFURT (Reuters) - Daimler’s first-quarter operating profit fell 16 percent on Friday as a 718 million euro ($800 million) one-off gain failed to offset raw material costs, technology investments and production delays at three Mercedes-Benz factories.

FILE PHOTO: An illuminated logo of Mercedes is seen on the Mercedes-Benz F105 at an exhibition before the Daimler annual shareholder meeting in Berlin, Germany, April 5, 2018. REUTERS/Hannibal Hanschke

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.

Mercedes-Benz sales in China, the world’s largest car market, fell 3 percent and plans to make a Mercedes-Benz pickup truck in Argentina have been abandoned after a management review, the carmaker said.

“We cannot and will not be satisfied with this, as expected, moderate start to the year. We now have to work hard to achieve our targets for 2019,” Chief Executive Dieter Zetsche said in a statement to accompany his final quarterly results as boss.

Daimler blamed new suppliers for problems launching a sports utility vehicle platform, causing production delays for a new high-margin GLE model and the return on sales at Mercedes-Benz cars to fall to 6.1 percent, down from 9 percent a year earlier.

“Daimler is blaming supplier bottlenecks and quality issues pretty much across all divisions for its poor financial performance. To be clear: it’s management’s job to manage its supply chain and relationships with partners,” Evercore ISI analyst Arndt Ellinghorst said in a note on Friday.

Earnings before interest and tax (EBIT) fell to 2.80 billion euros, below the 2.89 billion expected by analysts despite a 718 million euros valuation boost from the merger of the mobility services divisions of Daimler and BMW.

Daimler shares slipped on the news and were down 2.47 percent at 1345 GMT.

Daimler reiterated it expected slight growth in unit sales, revenue and EBIT on a group level this year, but only after cost-cutting measures are implemented.

At the same time Daimler lowered the outlook of its vans division saying the EBIT margin range would be 0 to 2 percent, rather than 5 percent to 7 percent.

Jefferies analyst Philippe Houchois said: “The outlook feels slightly optimistic given the weak start to the year.”

Reporting by Edward Taylor; Editing by Keith Weir and Elaine Hardcastle