Daimler cuts dividend to lowest in decade

Bloomberg

Daimler AG slashed its dividend to the lowest since the financial crisis and promised deeper cost cuts as Chief Executive Officer (CEO) Ola Kallenius frees up cash this year to electrify its vehicle lineup.
Kallenius, who has struggled to make headway on a restructuring push in his first nine months on the job, vowed to deliver “significantly” higher profit this year than last, by squeezing out costs and capping investments. Daimler will also review non-core operations to channel more money into automaking, the German manufacturer said.
The 50-year-old CEO is under pressure to improve operations in 2020 after he issued three profit warnings since taking office last May. Daimler faces mounting vehicle recall and legal costs amid allegations of diesel-cheating. And the company has been slower than Volkswagen AG to electrify its fleet and now faces rising competition from Tesla Inc., which plans to build a factory outside Berlin.
“This company is going to change fundamentally,” Kallenius told investors in Daimler’s home base of Stuttgart, Germany, after reporting full-year results. While it won’t be easy, “we will work 24/7 to make this happen, to make this somewhat of a turning point.”
The dividend will go down by about two-thirds, to 0.90 euros ($0.98) per share, Daimler said. Investors bid the stock up by as much as 4% on optimism about the earnings forecast. It rose 0.5% to 43.25 euros as of 10:42 am in Frankfurt, after the CEO also assured investors he was committed to maintaining the payout.
Still, with a market value of about 46 billion euros, Daimler is worth less than half of the much-smaller Tesla, and is the worst performer on Germany’s benchmark DAX index this year.
Daimler reported a 61% slump in 2019 earnings before interest and taxes. Profit was hampered by production hiccups, ballooning expenses to fix diesel vehicles, and the cost of shifting to electric cars.
Now Kallenius expects the efficiency measures to unleash a turnaround starting this year, with earnings before interest and taxes forecast to grow “significantly” compared to 2019. But the CEO faces several obstacles to make that happen — from the persistent threat of higher tariffs to the coronavirus outbreak that hit its largest market China.
Job cuts are a critical component of the effort to make the manufacturer leaner. While Daimler didn’t detail any new personnel changes, the carmaker said last year it would eliminate more than 10,000 positions worldwide, using voluntary measures such as early retirement and attrition.
On Tuesday, Kallenius said the savings on labor will top 1.4 billion euros ($1.5 billion) by 2022.
What Bloomberg Intelligence says:
“Despite the dividend cut being worse than expected, we think the magnitude makes sense, given the need to fund an accelerated and costly transition to EVs. Management faces a multitude of headwinds in 2020, so a renewed focus on cost cutting and cash conversion looks prudent to us”
— Michael Dean, BI automotive analyst
Alongside moves to rein in spending, Kallenius has outlined plans to introduce more than 20 new plug-in hybrid and fully-electric Mercedes cars by 2022.
Mercedes-Benz will introduce a fresh iteration of its S-Class flagship sedan this year and roll out the EQA, a compact electric SUV that will flank the slightly larger EQC and the EQV minivan. The brand plans to quadruple the share of plug-in hybrids and fully electric vehicles in its deliveries this year, the company said.