FRANKFURT -- Mercedes-Benz parent Daimler has discreetly warned financial analysts that CO2 compliance costs and market headwinds for next year would be much higher than previously thought and asked them to reduce their earnings estimates for the automaker by billions of euros.
Speaking on condition of anonymity, four different brokerage houses -- two based in Germany and two based in the UK -- confirmed they had been contacted in recent weeks ahead of a capital markets presentation in London on Thursday, followed by a meeting with investors in New York on Friday.
They were told that the analysts' 2020 consensus estimate of just over 10 billion euros for group operating profit was about a fifth too high because of added costs to electrify Mercedes' passenger car fleet that cannot be passed on to customers and an accelerated slump in demand for heavy commercial vehicles.
"This wasn't a little, this was really running through the forest with an ax in panic because the consensus estimates were too high," said a London-based analyst. "BMW has their CO2 compliance costs absolutely under control, whereas at Daimler it's a huge problem, so now they are trying to pull consensus down by 20 percent."
During the calls, Daimler investor relations representatives said the company was forecasting that Mercedes would face between 1.2 billion and 1.5 billion euros in fresh headwinds while a cyclical downturn would lower results at Daimler Trucks by 700 million to 800 million euros.
While investor relations calls are common, most often they are done as a courtesy to individual analysts to protect them from creating unrealistic expectations among their clients that could make them look foolish.
"It's quite unusual to call everyone on the street and guide down," said a second analyst.
Consensus estimates of the entire investment community dropped by more than a fifth to below 9 billion euros in the following days as a consequence, the analysts said. "Basically, the management team wants to clear the decks ahead of the CMD (Capital Markets Day). They don't want to deliver any incremental bad news on Thursday."
Unusual timing
The blanket nature of the call, the dimension of the headwinds cited, the fact that nothing was flagged two weeks ago when Daimler reported third-quarter results on Oct. 24, and the timing just ahead of the key investor presentation only a few days away all combined to suggest this was highly unusual move, according to the analysts.
The analysts specified that the call only related to next year’s earnings estimates and no indications were given about midterm margin targets or concrete cost-cutting plans, or either might be announced this week.
Daimler's new CEO, Ola Kallenius, who succeeded Dieter Zetsche in May, is looking to save billions in costs as the automaker adjusts to the headwinds of trade tensions, plateauing sales and a pricey electrification strategy.
The company has issued two profit warnings this year, one in June, then another a few weeks later in July. Its credibility might take a further blow if investors had unrealistic expectations going into the capital markets presentation on Thursday. Also fresh in market memory are two profit warnings from 2018 under the former management team.
While Daimler has not issued a profit target for next year, it has said a cost-cutting program announced in February was designed to ensure its core Mercedes passenger car business would return to a target margin corridor of 8 percent to 10 percent by 2021.
This was a key pledge to shore up confidence in the plan because the company declined to provide a concrete savings target. Daimler had explained it was enough for investors to know that the countermeasures were designed with this goal in mind. Many analysts took this to mean there would be a sequential improvement from what is now a forecast 3 percent to 5 percent return at Mercedes this year.
Speaking at the Automobilwoche Congress in Berlin last Thursday, by which time his investor relations team had already made the calls, Kallenius said he would not give a "spoiler alert" for the financial targets during the capital markets presentation.
Daimler declined to comment on the specifics of the calls.
In a statement the company said: "The issue of CO2 compliance has been discussed within the industry and capital markets for a long time now. We have addressed this topic early and have a road map for CO2 compliance. As was the case before, this considerable effort requires investments in the future and leads to costs of which everyone is aware."
