By William Boston 

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (February 12, 2020).

BERLIN -- An unexpectedly sharp fall in profit prompted Daimler AG to cut its shareholder dividend by a third as the luxury car maker battles slumping demand, the escalating cost of a fundamental shift to electric vehicles and charges related to emissions-cheating probes.

The maker of Mercedes-Benz said Tuesday that it swung to a loss of EUR11 million ($12 million) in the three months to December, warning it would sell fewer cars this year.

The results were well below analysts' estimates and contributed to a 67% decline in full-year net profit to EUR2.4 billion.

Daimler said it would propose to shareholders to slash the annual dividend, to be approved at a meeting in May, to EUR0.90 a share from EUR3.25 a year ago, cutting the size of its payout to EUR1 billion, a third of what it returned to shareholders last year. The company said lower profit would also affect executive bonuses.

"We cannot be satisfied with our bottom line," Chief Executive Ola Källenius said. "We have a cost problem. Maybe we were too optimistic on what the revenue side could yield in the past," he added.

With demand for cars falling world-wide, auto makers more broadly are cutting prices, making it hard to offset the rising costs of building electric cars with a vast array of digital features.

Tough emissions standards in Europe and China are the big driver behind the push to develop electric vehicles. The European Commission requires auto makers to significantly reduce greenhouse gas emissions this year or face billions of euros in fines. To meet the targets, Mr. Källenius said, Daimler is launching an array of battery electric vehicles this year and doubling the number of hybrid models it produces.

But even that might not be enough, posing another risk to future profit.

"If you make large luxury cars, the road to compliance is longer," Mr. Källenius said. "It is possible that we will become compliant in 2020-21, but it's not certain."

It is also unclear whether Daimler's efforts will result in enough electric vehicle sales. Demand for plug-in electric cars in Europe remains weak, accounting for around 4% of new car sales last year, according to the European Automobile Manufacturers' Association.

Analysts said that Daimler was still struggling to settle investigations in the U.S., Europe, and other jurisdictions into allegations Germany's flagship luxury car maker manipulated its diesel emissions to meet requirements. Daimler denies wrongdoing. Analysts at Tuesday's news conference urged Mr. Källenius to settle the cases and move on.

"If it had been an easy thing to resolve and move on we wouldn't have spent four years negotiating with authorities," Mr. Källenius responded. "We are trying to get this to a good resolution as soon as we can."

The company has taken charges against potential fines and legal costs and agreed to pay a fine of EUR870 million last year to German authorities after the German regulator ruled that the company had used illegal software to manipulate diesel emissions in some 2018 and 2019 models.

Daimler, which also makes trucks, vans and buses, and operates a range of car-sharing, ride-hailing and other new mobility services, sold 30% of its Mercedes-Benz cars in China last year and produces some vehicles there as part of a joint venture with a local auto maker.

Mr. Källenius said that it was still too early to gauge the economic impact from the coronavirus outbreak in China for 2020 earnings, but said Daimler was returning to normal in the country.

A native Swede, Mr. Källenius took over at Daimler in May. But so far, the new CEO has had little opportunity to make his own mark, and instead has been forced to perform damage control from diesel litigation he inherited and the fallout from what analysts have called years of unfocused investment.

Daimler has already said it was negotiating with labor representatives about cutting around 10,000 from its global workforce of 298,655 people at the end of last year.

But despite the haircut for shareholders, Daimler said it would pay bonuses to nonmanagerial employees of up to EUR1,097 as part of a profit-sharing program the company launched in 1997. The bonus paid to about 130,000 employees in Germany totals around EUR143 million. Last year, Daimler paid employees a bonus of nearly EUR5,000 each.

Daimler's overall unit sales came to a standstill last year, the company said Tuesday. The Mercedes-Benz car division sold 2.4 million vehicles, unchanged from the year before, while Daimler Trucks sales tumbled 6%. Overall, Daimler's revenue rose 3% to EUR173 billion.

Mercedes-Benz Cars reported a 53% decline in earnings before interest and taxes to EUR3.4 billion in 2019, while Daimler Trucks earnings slid 11% to EUR2.5 billion, and Mercedes-Benz Vans reported an EBIT loss of EUR3 billion.

Daimler's woes reflect those afflicting the broader automotive industry. As the global economy has been weakened by trade disputes, political upheaval and the spread of coronavirus in China, demand for new luxury vehicles is also softening.

Daimler said that its new Daimler Mobility division reported earnings before interest and taxes of EUR2.1 billion last year, up 55% from the year before and a 15% return on sales. But the mobility unit also includes the company's bank, with its profitable leasing business. It isn't clear if the ride-hailing and ride-sharing businesses were profitable.

Write to William Boston at william.boston@wsj.com

 

(END) Dow Jones Newswires

February 12, 2020 02:47 ET (07:47 GMT)

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