Daimler cuts 2008 earnings outlook

Frankfurt: Daimler AG cut its 2008 earnings outlook on Thursday, saying it would not be able to offset a global growth slowdown, rising raw material prices and the strong euro by selling more vehicles and cutting costs.

"On the basis of the divisions' projections, the Daimler Group expects to post EBIT from ongoing operations of more than 7 billion euros ($11 billion) in 2008," the company said in a statement that knocked its shares down more than 10 per cent.

The maker of Mercedes-Benz cars and the world's biggest truckmaker had previously targeted earnings before interest and tax (EBIT) from ongoing operations of significantly above the 7.7 billion euros it made in 2007.

Daimler shares fell 9.4 per cent to 38.58 euros by 1043 GMT, the leading decliners among German blue chips and the DJ Stoxx European car sector index, as it reversed this week's trend by European peers to confirm their 2008 outlooks.

Negative impact

Daimler said its Mercedes-Benz and Trucks divisions now both expect earnings to fall this year, reversing a forecast in April for higher operating profit at the two businesses.

The negative impact of Daimler's remaining 19.9 per cent stake in ailing US carmaker Chrysler is not included in the earnings forecast. The Chrysler stake lopped 373 million euros from quarterly EBIT.

It wrote down the value of Chrysler vehicles by another 17 million euros. The book value of its stake is now 171 million.

Second-quarter group earnings before interest and tax fell a less-than-expected 4 per cent to 2.05 billion euros. The market had expected EBIT of 1.992 billion, according to a Reuters poll of 18 analysts.

Global slowdown

"Now they are talking about a slowdown of global growth and rising raw material costs, which are important factors in car manufacturing ... This does not look good at all," one dealer in Frankfurt said.

He contrasted Daimler with Volkswagen, which on Wednesday posted a 22 per cent rise in second-quarter operating profit and stuck to its outlook.

Based on prices before the earnings release, Daimler stock has lagged the car sector index by around 16 per cent this year and trades at around 6.5 times expected 2009 earnings per share, a discount to arch rival BMW's multiple of 7.4, according to Reuters Estimates data.

Second-quarter EBIT at Mercedes rose 1 per cent to a worse-than-expected 1.21 billion euros for a margin of 9.4 per cent versus 9.1 per cent in 2007 and 9.2 per cent in the first quarter. Daimler now sees the Mercedes 2008 operating margin at around 8 per cent.

The Trucks division's EBIT edged up 1 per cent to 608 million euros and its unit sales rose 10 per cent despite a weak U.S. economy and a buying spree in 2006 that preceded the introduction of tougher US emissions standards last year.