THE COMPANY FOR WHICH AUTO ANALYST EFRAIM LEVY WORKS WAS MISIDENTIFIED IN AN ARTICLE IN SATURDAY'S BUSINESS SECTION. IT IS S&P EQUITY GROUP. (Published 08/03/1999)
DaimlerChrysler AG's stock was hammered for a second day, as Wall Street analysts soured on the firm's prospects and investors fled a company hailed only last year as a new transatlantic corporate giant.
DaimlerChrysler closed at $72.12 1/2, down $5.43 3/4, near the 52-week low of $71.87 1/2. In two days, the stock has dropped almost 15 percent. Thursday, the company reported earnings per share of $1.53, much lower than analysts' expectation of $2 a share, and offered a lukewarm forecast for the rest of the year.
"The market psychology has changed toward the company and its management," said Efraim Levy, auto industry analyst at ES&P Equity Group. In January, two months after Daimler-Benz AG and Chrysler Corp. completed their merger, the company's stock touched a high of $108.62 1/2.
In a damning advisory note issued yesterday, Lehman Brothers Inc. analyst Christopher Will said that the fall in stock price reflected more than just poor profits. It said that "it was the day when the European investors discovered that DaimlerChrysler is Chrysler, with its earnings principally geared to highly volatile and low-quality North American car and light truck profitability." Will, who issued a critical report on DaimlerChrysler last month, maintained the stock as "neutral" but suggested BMW was a better stock to acquire.
A number of other securities firms cut their ratings for DaimlerChrysler, including Warburg Dillon Read, Dresdner Kleinwort Benson, Credit Lyonnais SA and Merrill Lynch & Co.
Other analysts, however, felt that the market was overreacting. "It's still a very good company with good long-term prospects," said David Bradley, analyst at J.P. Morgan Securities Inc.
For its part, DaimlerChrysler said that the weak earnings were due to higher price incentives that were intended to boost sales of Chrysler products in the competitive North American market.
For the Chrysler brands--including Chrysler, Jeep, Plymouth and Dodge--the average incentive per vehicle rose from $1,284 in the first quarter to $1,345 in the second quarter.
What's worrying analysts is that the company had to resort to such incentives at a time when car sales are booming. This year, 16.5 million to 17 million vehicles are expected to be sold.
With the auto market expected to shrink by 2.6 percent in the year 2000, analysts see DaimlerChrysler's profits suffering. DaimlerChrysler has warned its earnings for the rest of the year will only be in line with the revenue growth and not outpace it, as the company said it would earlier this year.
Part of the problem, analysts say, is the slowdown in new product launches from the company. This in turn has forced DaimlerChrysler to step up price incentives in the last two years.
In the second quarter, the operating profit in the Chrysler automotive operations rose by just 1.4 percent, to $1.36 billion, although revenue grew by almost 10 percent, to $16.77 billion. The Mercedes-Benz and Smart car business fared better, reporting a 17 percent rise in quarterly operating profit to $635 million.
Fixed-income analysts such as Kevin Morley of Credit Suisse First Boston are maintaining their A plus rating for the company's bonds, citing its "global footprint, well-diversified businesses and excellent products" as reasons for investor confidence. "A short-term blip has very little consequence to the company," Morley said.