BERLIN, Sept 20 (Askume) – Mercedes-Benz (MBGN.DE) cut its full-year profit margin target for the second time in less than two months, hitting European auto shares as the company joins Vietnam in weakening China’s auto market, the world’s biggest.
Shares in the German luxury carmaker fell to their lowest in almost two years and became the biggest decliner among European auto stocks (.SXAP) after it disclosed a profit warning late on Thursday.
The stock was down 7.2% by 0825 GMT.
China’s economic weakness and the local real estate crisis have badly hit demand including for cars, causing headaches not only for Mercedes but also Volkswagen (VOWG_p.DE) , Porsche (P911_p.DE) and BMW (BMWG.DE) .
As a result, Mercedes-Benz has lowered its 2024 earnings forecast for Mercedes-Benz Cars and the Mercedes-Benz Group, after lowering its profit margin forecast in July for the same reason.
“I’m trying to express it diplomatically, people are very cautious,” Chief Executive Ola Källenius told analysts on a conference call after the announcement. He added that in such conditions, it is not surprising to cut spending on expensive capital goods.
“How long will this last? I don’t know, but I’m cautious about China in the near future.”
Mercedes-Benz currently expects adjusted return on sales to be between 7.5% and 8.5% in 2024, down from a previous range of 10% to 11%, which means adjusted return on sales in the second half of the year is expected to be around 6%.
As a result, Mercedes-Benz Group’s earnings before interest and tax (EBIT) is now expected to be well below last year’s level of 19.7 billion euros ($22 billion), compared with a slight decline in the previous forecast.
Group EBIT is expected to be 15.83 billion euros, according to LSEG estimates.
“Needless to say, we are not satisfied with the current situation and we will review the wider range of measures and how to improve the quality of the contribution margin,” financial director Harald Wilhelm said, adding that the group would look to further improve efficiency.
Free cash flow from the Group’s Industrial business is also expected to be significantly lower than last year’s level.
Analysts at Royal Bank of Canada said that although investors had expected a profit warning, the warning was still seen as a surprise “particularly given the severity of today’s news and the lack of warning.”
Last week, BMW also said persistent sluggish demand in China was hurting sales there, adding to a growing list of automakers facing difficulties in the world’s second-largest economy.
(1 USD = 0.8949 EUR)
