Mercedes-Benz Shares Slump After Another Profit Warning

By Dominic Chopping

Mercedes-Benz cut its margin guidance for the second time in under two months amid ongoing weakness in China, sending its shares sharply lower and dragging the European auto sector down with it.

Mercedes shares were 7.4% lower at 54.64 euros in early trade in Europe, while BMW and Porsche shares fell 4.1%, Volvo Car 3.5% and Volkswagen 2.8%.

The German luxury automaker said late Thursday it is being hurt by a further deterioration in the macroeconomic environment, mainly in China, where economic growth has lost further momentum amid weaker consumption and the continued downturn in the real estate sector.

Therefore, the company expects to report an adjusted return on sales in its cars division of between 7.5% and 8.5% this year, from the 10% to 11% expected previously, which implies a level of around 6% in the second half of the year.

The guidance downgrade comes after Mercedes had already cut the return on sales target in July from between 10% and 12%, saying at the time that the Chinese market was tough.

"While some investors had been anticipating a profit warn from Mercedes Benz, we still view this news as a surprise, especially given the magnitude and lack of cautionary commentary ahead of [the] news," RBC Capital Markets analyst Tom Narayan said in a note to clients.

Group earnings before interest and taxes are now expected to be significantly below last year's level, having previously guided for a figure slightly below last year's level.

Free cash flow from the company's industrial business is also expected to come in significantly below the prior-year level, versus prior guidance that it would be slightly below last year's figures.

The company said its van unit's expected adjusted return on sales is still seen at between 14% and 15%, while its mobility unit's expected adjusted return on equity is still seen at 8.5% to 9.5%.

The news comes after German rival BMW last week slashed its forecasts for profitability and sales volumes after reporting soft car sales in China on top of other issues, noting that consumer sentiment in China remained weak despite stimulus measures from the government.

Write to Dominic Chopping at dominic.chopping@wsj.com

(END) Dow Jones Newswires

September 20, 2024 03:49 ET (07:49 GMT)

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