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Daimler Fell, Cut Its 2019 Outlook Due to High Recall Costs

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Jun. 24 2019, Updated 11:04 a.m. ET

Daimler cut its 2019 outlook

On June 23, Daimler AG (DDAIF) announced a cut in its 2019 outlook. The company expects its 2019 EBIT to be nearly flat compared to the previous year. Daimler cut the 2019 return on sales outlook for its Mercedes-Benz vans division to -2% to -4%. Earlier this year, Daimler expected the return on sales for its Mercedes-Benz vans to be 5%–7%.

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Why did Daimler cut its outlook?

On June 22, the Transportation Ministry ordered Daimler to recall nearly 60,000 Mercedes diesel vehicles in Germany, according to a recent Reuters report.

The recall includes Mercedes-Benz GLK 220 vehicles produced between 2012 and 2015. The recall was ordered after the Transportation Ministry discovered that Daimler was involved in an emission scandal. Daimler used various software in the car models to distort emission tests. The high costs related to recalling the vehicles will likely impact the company’s second-quarter earnings.

What did the company say?

In a press release on June 23, Daimler informed investors that an “increase of provisions for various ongoing governmental proceedings and measures relating to Diesel vehicles by a high three digit million amount will affect Daimler’s second quarter 2019 earnings and be taken into account in the Group EBIT.”

On June 24 at 10:23 AM ET, Daimler shares fell 2.6% in the OTC market. Investors are trying to digest the cut in the company’s 2019 outlook. The related emission scandal could hurt Daimler’s brand image.

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