Daimler CEO Ola Källenius is implementing changes at the company to improve profitability.
Daimler AG officials offered up a familiar story when reporting its Q1 2020 profits dropped significantly compared with the year ago results: The coronavirus hit the company’s sales and bottom line hard.
The company’s total unit sales dropped 17% to 644,300 passenger cars and commercial vehicles versus the 773,800 vehicles the company sold in the first quarter last year. Revenue slipped slightly by 6% to €37.2 billion, or $40.4 billion from Q1 2019’s €39.7 billion.
Daimler’s first-quarter EBIT was €617 million, $669.2 million, was down significantly from the year-ago period’s results of €2.8 billion. Adjusted EBIT, reflecting the underlying business, came in at €719 million, or $779.9 million. The company reported Q1 2019 at €2.3 billion.
(Daimler moves to shore up credit line in face of outbreak.)
“The COVID-19 pandemic has substantial effects on the global economy — and our company,” said Ola Källenius, Chairman of the Board of Management of Daimler AG and Mercedes-Benz AG. “We took the proactive decision to stop production in March, and moved very quickly into cash preservation and cost management mode.
Mercedes-Benz Cars saw its sales, and profitability, drop during the first quarter of the 2020.
“As a consequence, Daimler ended the first quarter with a positive result and a robust liquidity. Now we have started with a gradual ramp-up of our production. At the same time, we are continuing to invest in key technologies, including electrification and digitalization. They are non-negotiable elements of our future.”
In the first quarter of 2020, net profit was €168 million, or $182.3 million, compared with the same period last year at €2.1 billion, the company noted. However, the net profit attributable to the shareholders of Daimler AG was lower at €94 million ($102 million) whereas for Q1 2019 it came in at €2.1 billion, leading to a decline in earnings per share to €0.09, or $0.09, compared with the previous year’s total of €1.96.
(Daimler, other makers cut production as virus spreads.)
While many automakers expressed optimism that April will be the bottom of the market, Daimler executives were quick to express concern about developments in the market that could keep profits down, in particular potential issues within its Mercedes-Benz Cars unit.
On Wednesday officials warned the carmaker hiked credit risk provisions to anticipate rising delinquencies among customers who leased or bought Mercedes-Benz passenger cars. Daimler reported 448 million euros, or about $486.7 million, in credit risk provisions to cover potential credit losses after the coronavirus pandemic caused global demand for passenger car to stall.
Daimler officials warned about a potential rise in defaults by vehicle owners in the second quarter of 2020.
Fortunately, the company has been proactive, officials noted, when it comes to ensuring it has the financial resources, i.e. cash, needed to carry on in 2020. The net liquidity of the industrial business decreased to €9.3 billion, or about $10.1 billion, at the end of first quarter, compared to €11 billion at year-end 2019. The decrease is particularly due to the negative free cash flow of the industrial business.
However, in early April, Daimler bolstered its finances with a new €12 billion, or $13 billion, loan facility agreement. This is in addition to the company’s existing €11 billion revolving credit facility, which officials noted has not yet been touched. The additional loan facility was agreed with an international banking syndicate and can be utilized within a 12-month period with two extension options of six months.
(Despite Mercedes sales record, Daimler’s 2019 profits take massive hit.)
Unsurprisingly, Daimler officials reiterated it had cancelled previously offered guidance for 2020 results, and that group revenue and earnings before interest and taxes (EBIT) to be below 2019 levels.