Mercedes-Benz stock falls on big Q3 earnings miss; cash flow remains strong

Investing.com — Mercedes-Benz (OTC:) shares fell more than 2.5% in European trading Friday after the German carmaker reported a sharp 64% drop in third-quarter earnings within its core car division, falling significantly short of analyst expectations.

Adjusted earnings before interest and taxes (EBIT) in the car unit fell to 1.2 billion euros, missing the consensus forecast of 3.19 billion euros, according to LSEG.

The EBIT margin in the car segment came in at 4.7%, which was also below the 5.4% expected by analysts.

The decline reflects a continued pullback in luxury spending by Chinese consumers amid an economic slowdown.

“The Q3 results do not meet our ambitions,” said Mercedes CFO Harald Wilhelm and indicated that the company will ramp up cost-cutting measures to address the impact.

One positive aspect was the company’s free cash flow (FCF) which stood at 2.4 billion euros, above the consensus estimate of 2 billion euros.

“This is important as it supports the dividend and capital return in 2025,” RBC Capital Markets analysts commented. “Capital return is central to our investment thesis for Mercedes.”

Jefferies analysts shared similar comments, noting that the “disappointing miss in Car margin [was] compensated by strong FCF.”

Mercedes-Benz now anticipates full-year car sales to be slightly lower than last year, with fourth-quarter sales expected to be on par with the third quarter.