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Daimler Gives Profit Warnings on Regulatory & Recall Costs

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German automaker Daimler AG (DDAIF - Free Report) has lowered its profit forecast for the fourth time in 13 months most likely due to costs involved in regulatory crackdown and recall.

The luxury carmaker’s shares plunged after the company announced expectations of lower pre-tax profits in 2019 from the 2018 levels. Further, the company decided to set aside more money to tide over the fallout on diesel emissions and airbag recalls.

Daimler is setting a reserve worth 1.6 billion euros for ongoing governmental and court proceedings, measures related to Mercedes-Benz Diesel vehicles as well as higher provision related to the recall of Takata airbags by 1 billion euros.

The warning does not bode well for the vast auto sector in Germany, which is likely to cause an economic slowdown. The company also faces lower demand for diesel in the U.K. and Europe. Further, Daimler’s confidence has been hit by an ongoing trade war, as its vehicles are shipped from the United States to China.

An investigation is underway to check the carmaker’s diesel pollution levels. It has become a mandate for the company to clean combustion engines. This is likely to be a hurdle to the company’s growth as it intends to make heavy investments in self-driving and electric vehicles. Moreover, sluggish growth in China along with weak demand in Europe is spreading tension globally.

The company anticipates second-quarter loss before interest and taxes of 1.6 billion euros against profit of 2.6 billion euros in the year-ago quarter.

In the past six months, Daimler has underperformed the industry it belongs to. During the same time frame, the company’s shares have dropped 8.1% compared with the industry’s fall of 3.6%.


Zacks Rank & Stocks to Consider

Daimler carries a Zacks Rank #5 (Strong Sell).

Some better-ranked stocks in the auto space are Ford Motor Company (F - Free Report) , CarMax, Inc (KMX - Free Report) and AutoZone, Inc (AZO - Free Report) . While Ford sports a Zacks Rank #1 (Strong Buy), CarMax and AutoZone carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Ford has an expected long-term growth rate of 7.3%. In the past six months, shares of the company have gained 26.5%.

CarMax has an expected long-term growth rate of 12.57%. In the past six months, shares of the company have rallied 39.1%.

AutoZone has an expected long-term growth rate of 12.2%. In the past six months, shares of the company have improved 39.8%.

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