Daimler profits down 60 per cent as earnings sag in slow European economy

FRANKFURT – Daimler AG warned Wednesday that profits this year would be lower than last year’s as it reported a 60 per cent slide in first-quarter earnings amid slumping auto sales in Europe.

The maker of Mercedes-Benz luxury cars said net profit fell to 564 million euros ($733 million) from 1.42 billion euros in the same quarter a year ago. Revenue was down 3 per cent at 26.1 billion euros.

Profits fell short of the 810 million euros expected by analysts surveyed by financial information provider FactSet. The company’s share price was steady at €40.90 in morning trading in Europe.

Daimler laid much of the blame on the economic problems afflicting many countries in Europe. The economy of the 17 countries that use the euro currency is in a recession and struggling to reduce excessive levels of government debt.

CEO Dieter Zetsche said “many markets developed worse than expected for economic reasons, especially in Western Europe. “

Daimler kicked off what could be a rough earnings quarter for European carmakers, as the region’s sales have slumped alarmingly in the first three months of the year. U.S.-based Ford Motor Co. reports earnings later Wednesday.

European auto sales fell 9.8 per cent in March, the 18 monthly drop in a row, measured on a year on year basis, according to the European car industry association ACEA. Consumers are reluctant or unable to spend, as governments cut spending to deal with their debt problems. That has dented growth rates across Europe and pushed unemployment higher.

The economic fallout is worst in indebted countries in southern Europe such as Italy and Spain. But sales have also fallen in better-off Germany, home market for Daimler’s flagship Mercedes-Benz luxury brand. Sales for all auto companies fell 13 per cent there in March.

Stuttgart-based Daimler said it expected the U.S. and Chinese markets to grow but warned that European car sales would decline further this year. The company said that “the German market cannot detach itself from this development and is expected to fall significantly short of the previous year’s level.” Daimler also said the market for trucks would fall 5 per cent due to the slow economy.

The company’s flagship Mercedes brand saw sales fall in the key Chinese market as it reorganized its sales operation there. High spending of 1.6 billion euros on new plants and equipment also hurt earnings for the quarter.

The company said that earnings before interest and tax for this year would come in below last year’s figure of 8.1 billion euros, due to lowered market expectations and the weak first quarter performance. The company had previously said this year’s earnings would match last year’s.

The profit prediction was also reduced because Daimler has sold its 15 per cent stake in aerospace firm EADS, parent company of plane maker Airbus. Daimler’s future earnings will therefore no longer include a share of EADS profits or losses. Daimler had 22.5 per cent of EADS voting rights, and so had been reporting that proportion of EADS income.