Daimler Issues Another Profit Warning as Legal Woes, Recalls Hit

By Sara Germano

BERLIN -- Daimler AG cut its earnings outlook for the second time in a month, as the legal fallout from the continuing diesel-emissions scandal continues to hamper the luxury auto firm.

The Mercedes-Benz maker on Friday blamed the warning on higher-than-expected costs related to an extended recall of rupture-prone Takata air bags and ongoing proceedings related to its diesel vehicles. It also said a product review would hurt earnings of its vans business.

Those issues, with a combined impact of EUR3.1 billion ($3.5 billion), weighed heavily on second-quarter earnings. The Stuttgart-based company said quarterly earnings before interest and taxes swung to a loss of EUR1.6 billion, compared with a EUR2.6 billion profit a year ago.

Daimler said the higher expenses and provisions, together with lower-than-expected growth in auto markets, would also hit full-year figures. It now expects group EBIT for the full year to be "significantly below" that of last year, which came in at EUR11.1 billion.

Daimler shares fell 1% in early trading.

Friday's profit warning is the latest piece of bad news for Germany's auto sector, which is contending with a global slowdown in new car sales, various regulatory issues and the transition to electric and hybrid vehicles.

The announcement is the second time Daimler has cut forecasts within a month and the fourth in the past year. In June, the company said it would take a one-time charge related to ongoing diesel investigations and other unspecified issues, totaling hundreds of millions of euros.

Also last month, the German Transport Ministry said it ordered a recall of Daimler vehicles it suspected of manipulating diesel emissions through software. Daimler denied the allegations but said the recall affects 42,000 vehicles sold in Europe.

The successive warnings pose a challenge to new Chief Executive Ola Källenius as he tries to navigate through the various industrywide issues. Mr. Källenius, who was previously Daimler's research-and-development chief, replaced longtime CEO Dieter Zetsche earlier this year.

Daimler's warnings show how four years after the diesel-emissions scandal first surfaced at Volkswagen AG, German auto makers have struggled to put it behind them. VW itself was served with a new lawsuit from the U.S. Securities and Exchange Commission, and its former chief executive and others were charged by German prosecutors relating to the emissions cheating ordeal.

Meanwhile, the chief executive of BMW AG last week said he would step down in the coming months. The company intends to announce a successor next week, who will face the challenge of dealing with shrinking profits and the expensive race to develop electric cars.

Write to Sara Germano at sara.germano@wsj.com

(END) Dow Jones Newswires

July 12, 2019 05:33 ET (09:33 GMT)

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