FRANKFURT: Investors are bracing themselves for what could be the end of the Chinese boom for Europe's luxury car makers as double-digit profit margins are threatened by slowing growth in the world's second-largest economy.
Daimler, BMW and Audi, which together account for close to 80 percent of the premium market in China, publish quarterly earnings over the next two weeks and the market will pore over the reports for signs that China's slowdown could have a lasting impact.
The growing number of affluent Chinese willing to splash out on luxury sedans or SUVs propelled German manufacturers such as BMW to record profits, but some investors fear that Daimler will reduce its full-year target for operating profit to 9 billion euros ($10.95 billion) when it publishes second-quarter results on Wednesday.
"Is it possible to disappoint investors already expecting a disappointment?" Morgan Stanley wrote in a research note on Monday, adding that most "already expect a cut to guidance".
Analysts still expect a material growth in profits at Daimler's Mercedes car business in the second half, a Reuters poll suggests.
However, if Mercedes profits were to decline at the pace implied for the first half, Daimler would miss its target by about 600 million euros.
"It's the only German car company losing volume in China," Bernstein analyst Max Warburton told a conference in Monaco last month.
"I think we are moments away from a profit warning." June sales of Mercedes-Benz luxury cars in China increased only marginally, which the company attributed to model changeovers and a temporary lack of production capacity.
DECLINE PRICED IN "The monthly sales clearly lag the other two (BMW and Audi)and yet there are no consequences.
Volkswagen replaces Karl-Thomas Neumann as its head of China, though they are super successful there, and Daimler does nothing. I consider a profit warning quite possible," Metzler analyst Juergen Pieper said.
He recently cut his earnings estimates and reaffirmed his "sell" rating, arguing that Mercedes will lose further market share to peers despite aggressive price incentives.
Although BMW and Audi have continued to record strong volume gains in China, now the largest single market for both, Citigroup believes that BMW's interim results on August 1 will show that margins have reached their peak.
"We fear that the best months are behind us for China premium sales growth," Citigroup said in a research note on June 26, when it downgraded its rating on BMW's stock.
Warburton, however, suggests that investors should keep faith in BMW because the decline in China is already priced in to the shares.
That leaves Volkswagen's Audi, which publishes its full first-half report on July 31. However, preliminary figures on revenue and operating profit will be revealed when parent VW publishes its interim report on Thursday.
The consensus forecast in a Reuters poll of analysts is that Audi's quarterly operating margin will narrow 1.3 percentage points to 11.6 percent -- still high, even for a premium brand.
Mercedes is expected to manage only 8.3 percent, against 10.7 percent a year ago. Sports-car manufacturer Porsche is expected to publish its turnover and operating profit on Friday.
indiatimes.com
Daimler, BMW and Audi, which together account for close to 80 percent of the premium market in China, publish quarterly earnings over the next two weeks and the market will pore over the reports for signs that China's slowdown could have a lasting impact.
The growing number of affluent Chinese willing to splash out on luxury sedans or SUVs propelled German manufacturers such as BMW to record profits, but some investors fear that Daimler will reduce its full-year target for operating profit to 9 billion euros ($10.95 billion) when it publishes second-quarter results on Wednesday.
"Is it possible to disappoint investors already expecting a disappointment?" Morgan Stanley wrote in a research note on Monday, adding that most "already expect a cut to guidance".
Analysts still expect a material growth in profits at Daimler's Mercedes car business in the second half, a Reuters poll suggests.
However, if Mercedes profits were to decline at the pace implied for the first half, Daimler would miss its target by about 600 million euros.
"It's the only German car company losing volume in China," Bernstein analyst Max Warburton told a conference in Monaco last month.
"I think we are moments away from a profit warning." June sales of Mercedes-Benz luxury cars in China increased only marginally, which the company attributed to model changeovers and a temporary lack of production capacity.
DECLINE PRICED IN "The monthly sales clearly lag the other two (BMW and Audi)and yet there are no consequences.
Volkswagen replaces Karl-Thomas Neumann as its head of China, though they are super successful there, and Daimler does nothing. I consider a profit warning quite possible," Metzler analyst Juergen Pieper said.
He recently cut his earnings estimates and reaffirmed his "sell" rating, arguing that Mercedes will lose further market share to peers despite aggressive price incentives.
Although BMW and Audi have continued to record strong volume gains in China, now the largest single market for both, Citigroup believes that BMW's interim results on August 1 will show that margins have reached their peak.
"We fear that the best months are behind us for China premium sales growth," Citigroup said in a research note on June 26, when it downgraded its rating on BMW's stock.
Warburton, however, suggests that investors should keep faith in BMW because the decline in China is already priced in to the shares.
That leaves Volkswagen's Audi, which publishes its full first-half report on July 31. However, preliminary figures on revenue and operating profit will be revealed when parent VW publishes its interim report on Thursday.
The consensus forecast in a Reuters poll of analysts is that Audi's quarterly operating margin will narrow 1.3 percentage points to 11.6 percent -- still high, even for a premium brand.
Mercedes is expected to manage only 8.3 percent, against 10.7 percent a year ago. Sports-car manufacturer Porsche is expected to publish its turnover and operating profit on Friday.
indiatimes.com
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