European Carmakers Miss Forecasts in Sluggish Start to the Year

By David Sachs

European carmakers reported a slow start to the year, trailing expectations as revenue suffered and model changeovers weighed on quarterly results.

Volkswagen Group, Stellantis and Mercedes-Benz Group each said revenue and earnings slipped in the first quarter, but pointed to growing pains that will generate gains from new and upgraded models later this year. The theme matched overall industry expectations, though in some cases missed forecasts were acute, sending down share prices on Tuesday.

Volkswagen's earnings came in below analysts' expectations as sales slipped and fixed costs rose, though revenue aligned with forecasts despite falling 1% compared to the first quarter of 2023.

"As expected, our first quarter results show a slow start to the year," said Arno Antlitz, finance chief of the German car giant.

Audi and Porsche margins weighed on the results, as did ramp-up costs for more than 30 new releases this year, the company said.

But the car division's cash outflow--a closely watched metric for investors who question the German carmaker's high spending--raised eyebrows at 3.93 billion euros ($4.21 billion), about EUR2.13 billion more than expected, Jefferies analysts said in a research note. The flow of the spending spigot should have already started to reverse, they added.

Volkswagen shares traded 2.3% lower at EUR118.45 at 0945 GMT.

Jeep maker Stellantis recorded a 12% revenue drop on weaker sales in its biggest markets of North America and Europe, missing analysts' forecasts by about EUR2.65 billion, according to a Visible Alpha consensus.

Stellantis CFO Natalie Knight also pointed to revenue-saving new-model releases later this year, and said that pricing was a silver lining in the first quarter.

While the mass-market manufacturer's results will disappoint investors, the company's good pricing levels in the face of decreasing inventories could help the share price absorb the miss, according to Stifel analysts.

"The numbers should disappoint at the opening, but the stock's downside could be mitigated by unabated pricing discipline," the analysts said in a research note.

Stellantis shares were down 2.4% to EUR22.68 at 0949 GMT.

Profitability for the cars division at Mercedes-Benz took a hit, as the German premium-car maker sold fewer overall cars and the share of more profitable, higher-end models decreased.

Aside from costs related to new model launches this year, Mercedes-Benz suffered from weaker demand in hyper-competitive China and a lack of affordability, Citi analysts said in a research note. The luxury-car maker favors higher-margin sales over high sales volumes.

"We have become increasingly a bit worried about the [Mercedes-Benz] Cars operations," the analysts said, adding that the company's cash flow is strong.

Its adjusted earnings before interest and taxes margin finished the quarter at 9%, below the 10.2% forecast in the company-compiled consensus. But Mercedes-Benz was defiant on its strategy, which helped boost shareholder returns last year.

"Mercedes-Benz wants to hold and defend pricing at current levels," the company said.

Shares in Mercedes-Benz were down 2.9% to EUR71.86 at 0950 GMT.

Write to David Sachs at [e-mail]

(END) Dow Jones Newswires

04-30-24 0631ET