When a company suddenly warns it won’t meet its profit target, shareholders can be unforgiving -- especially when there is still more than half the year to go. That is what Daimler CEO Ola Kallenius is learning a little more than a month into his new job.
Daimler’s third profit warning in less than 12 months risks rekindling bad memories. In their earlier years leading the company, the previous management team under CEO Dieter Zetsche and finance chief Bodo Uebber regularly overpromised and underdelivered.
At one point on Monday Daimler traded more than 5 percent lower and recovered only marginally.
Daimler wasn't helped by saying the revision in guidance is only a minor change from a slight increase in 2019 annual operating earnings to being roughly flat.
“New year, same old game,” summarized NordLB analyst Frank Schwope.
Confidence in the company has been shaken and that is what makes this hit so symbolically crucial for Kallenius and his head of finance, Harald Wilhelm.
New CEOs often are given more leniency when it comes to their first earnings revision, but nothing is worse for a company's credibility than a drip-feed of bad news. That is exactly the risk stemming from Daimler’s numerous ongoing legal scandals, in particular those related to excessive diesel emissions -- cited as the reason for Sunday’s warning.
“The endless array of so called ‘one-time effects’ raises questions regarding process, management information systems and ultimately accountability of accountability of management,” Evercore ISI analyst Arndt Ellinghorst said in a note to investors.
Barring a positive surprise such as a snap decision to float Daimler Trucks on the stock market, Kallenius may have already exhausted his initial reserve of political capital among investors. He can't afford a second warning over the next 12 months, let alone the rest of this year, as it could be devastating for market confidence in his leadership.
Bigger tests are still to come. Investors remain in the dark about the true ambition and scale of Daimler’s cost-cutting plans, for example.
One key event to watch is Volkswagen Group’s IPO of its commercial vehicles business – scheduled for later this week. Should this match the success of Fiat Chrysler Automobiles' spin off of Ferrari, Kallenius may find it hard to earn political points among investors were he to choose to do likewise.
The optics of such a sudden strategic shift would not be favorable, as it would suggest Kallenius had little other choice and was acting defensively. A failure of VW’s Traton IPO would likely alleviate pressure on Kallenius.
The 50-year-old Swede started his term on a positive note, linking management pay to his ambition to put the entire Mercedes passenger car fleet on a path for full decarbonization by 2039.
Kallenius’ honeymoon as new CEO appears to be over. Now we will get a first impression of how he handles adversity.