Daimler Earnings Hit as Diesel Scandal Lingers -- 2nd Update

Daimler AG on Friday reported a sharp fall in third-quarter profit, as its flagship premium car brand Mercedes-Benz was hammered by airbag-related recalls and the cost of fixing emissions controls on diesel vehicles.

The downbeat results from Daimler, the first of Germany's big auto makers to report this earnings season, could signal more bad news to come from the industry as the fallout from the diesel emissions-cheating scandal that began with Volkswagen AG in 2015 continues to spread throughout the auto industry.

Daimler said net profit fell to EUR2.18 billion ($2.58 billion) from EUR2.60 billion a year ago, while earnings before interest and taxes -- the measure most closely watched by investors -- declined 14% to EUR3.46 billion. Profit was hit by currency fluctuations and charges -- EUR230 million to cover recalls connected to airbag issues and EUR223 million to fix or swap tainted diesel vehicles.

Total revenue -- including Mercedes-Benz, Daimler Trucks and a growing stable of car-sharing and ride-hailing operations -- rose 6% to EUR40.8 billion.

Daimler's earnings came just days after it said it was taking steps to consolidate its five business divisions into three separate registered companies, sparking speculation that the businesses could be spun off to investors.

The company has dismissed suggestions of a possible breakup, with Chief Finance Officer Bodo Uebber saying the move simply creates "the best-possible structure for the future."

"We do not intend to spin off these businesses," he said Friday.

Separately, Mr. Uebber said the company had applied for key witness protections in an ongoing European Union investigation into potential antitrust violations in the European auto industry. The move comes after Volkswagen revealed earlier this year that it had alerted European regulators to potential competition issues related to cooperation agreements between German car makers that might have suppressed costs of technology.

Car makers have said that they routinely cooperate in a variety of industry working groups and committees to achieve standardization of new technology. Daimler hopes that by aiding the EU's inquiries any potential fines could be reduced.

During the third quarter, Daimler's truck division posted a strong rise in earnings but its Mercedes unit went in reverse.

As well as charges, earnings were hurt by costs related to the launches of Mercedes' new flagship S-Class, X-Class light-utility vehicles and the company's first electric heavy truck.

Research and development spending on new vehicles and products, part of the company's push to build electric cars, digital services, and develop self-driving vehicle technology, also rose in the quarter to EUR2.3 billion from EUR1.9 billion.

Mounting costs related to the industry's diesel emissions woes were among the biggest headwinds hitting Daimler's bottom line.

In the face of threats to ban diesel vehicles from cities to reduce pollution, Daimler and other auto makers recalled millions of diesel vehicles to tweak software to improve emissions controls.

For older vehicles that couldn't be fixed through the software update, auto makers are offering up to EUR10,000 in discounts for owners who trade in an old model to purchase a new car, regardless if the new vehicle is diesel, gasoline or electric.

"Around 60% of the vehicles affected in Germany have been updated," Mr. Uebber told reporters on a conference call.

Write to William Boston at william.boston@wsj.com

(END) Dow Jones Newswires

October 20, 2017 06:01 ET (10:01 GMT)