February 1, 2018 / 7:42 AM / 6 months ago

Daimler's spending on new technology to dampen earnings growth

STUTTGART (Reuters) - Daimler’s (DAIGn.DE) profit growth will be dampened this year by spending on new technologies such as electric and autonomous vehicles, it said on Thursday, as it missed quarterly earnings forecasts and reported a lower margin on its Mercedes-Benz cars.

An expected rise in unit sales and revenue in 2018 will be countered by spending on new cars and technologies, the German automaker said, forecasting earnings before interest and tax (EBIT) would come in at a similar level to 2017.

Evercore ISI analyst Arndt Ellinghorst said Daimler’s results and guidance flagged investment and exchange rate challenges likely to hit profitability across the industry.

“Of course we are aware of many of these burdens, but to see it black and white is still shocking,” said Ellinghorst.

Most major carmakers are ramping up spending on electric vehicles and autonomous driving technologies, as well as services such as car-sharing, amid tightening emissions regulations and competition from the likes of Uber and Google.

Daimler said it faced currency headwinds - partly from the euro’s rise against the U.S. dollar, renminbi and yen - of up to 1 billion euros (874.3 million pounds) in 2018, as well as 200 million euros in extra raw material costs and a further 1 billion euros in investments to “secure the future.”

Ellinghorst calculated this could amount to an additional 300-400 million euros in extra restructuring costs and a rise of up to 700 million euros in research and development spending.

“Daimler is not alone. It will be harder for all companies to maintain their profitability,” said Ellinghorst, who has an “outperform” rating on Daimler shares.

Daimler’s EBIT for the fourth quarter through December was flat at 3.47 billion euros, missing the average forecast of 3.65 billion euros in a Reuters poll.

FILE PHOTO: The Mercedes star logo of an EQ concept car is pictured before the annual news conference of Daimler AG in Stuttgart, Germany, February 2, 2017. REUTERS/Michaela Rehle /File Photo

The return on sales at its Mercedes-Benz Cars division shrank to 9.7 percent from an unusually high 10.7 percent a year earlier, even as unit sales rose by 4 percent.

This year, Mercedes-Benz will post a slight rise in unit sales and flat EBIT at its cars division, Daimler forecast, while operating profit at the vans business will dip, with the costs of launching a pickup truck offsetting higher unit sales.

Despite a continued rise in demand for cars in China this year, Daimler said it expected more moderate demand in the first months of this year.

It also said it had set aside 3 billion euros towards its German pension plan.

It will pay a dividend of 3.65 euros a share for 2017, compared with analysts’ consensus forecast for 3.53 euros.

Shares in Stuttgart-based Daimler were trading 1.6 percent lower at 72.52 euros by 1227 GMT, underperforming the German blue-chip DAX .GDAXI index, which was up 0.1 percent.

Additional reporting by Jan Schwartz and Ilona Wissenbach; Editing by Mark Potter

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