Daimler Sticks to 2012 Forecast as Investments Sap Profit
Daimler AG (DAI), the world’s third- largest maker of luxury vehicles, stuck to its goal of keeping earnings steady, even as car and truck demand softens and the company boosts spending on new models.
Daimler plans to raise vehicle deliveries in 2012 and match last year’s operating profit from ongoing business of 9 billion euros ($11 billion). The company also reiterated a goal of boosting the operating margin at the Mercedes-Benz Cars division to 10 percent of sales in 2013.
Second-quarter earnings before interest and taxes fell 13 percent to 2.24 billion euros because of investments in new cars, Stuttgart, Germany-based Daimler said today in a statement. Chief Executive Officer Dieter Zetsche said the forecasts are based on “current market conditions” and that achieving the targets will be a “challenge” because of concerns about slowing global economic growth.
The Mercedes-Benz Cars operating margin in the quarter of 8.6 percent was a positive “surprise” amid car-price pressure in China, Max Warburton, a London-based analyst at Bernstein Research, said in a research report. “While top-down fears persist, the bottom-up report from Mercedes is solid,” said Warburton, who estimated the unit’s margin at 8.1 percent.
Shares in Daimler, which is also the world’s largest maker of heavy-duty trucks, jumped as much as 4.6 percent to 37.80 euros, the biggest intraday gain since March 8, and was trading up 4.1 percent at 1:11 p.m. in Frankfurt. The stock has risen 11 percent this year, valuing the company at 40.1 billion euros.
Mercedes-Benz ranked second behind Munich-based Bayerische Motoren Werke AG (BMW) in the global luxury-car industry from 2005 until 2011, when its sales fell behind Volkswagen AG (VOW)’s Audi. After opening a new plant Hungary in March, Daimler unveiled plans last week to double investment in a German small-car factory to 1.2 billion euros as it rolls out five new compact models to retake the lead from BMW.
The expansion counters a slowdown in Europe, where auto demand is poised to decline for the fifth consecutive year, prompting efforts by mass-market rivals like PSA Peugeot Citroen (UG) and General Motors Co. (GM) to shut factories in the region.
“Economic uncertainty and risks exist in nearly all regions,” Zetsche said in today’s statement. “We therefore remain vigilant in our monitoring of general economic developments and the volatile markets.”
Peugeot said today that recurring operating profit plunged to 4 million euros in the first half from 1.16 billion euros a year earlier on slumping demand in Europe. The Paris-based automaker plans to reduce costs by an additional 1.5 billion euros by lowering production, spending less on factories outside Europe and stepping up cooperation with GM. Ford Motor Co. (F) today forecast a full-year loss exceeding $1 billion at its European operations that will hurt the U.S. company’s group earnings.
Daimler’s second-quarter Ebit matched the 2.2 billion-euro average of 13 analyst estimates compiled by Bloomberg. Net income fell 11 percent from a year earlier to 1.52 billion euros. Sales rose 10 percent to 28.9 billion euros, helped by currency effects.
“Given the planned investments in new vehicles, our results are quite impressive,” Zetsche said on a conference call with journalists.
Ebit last year totaled 9 billion euros. Analysts are expecting earnings in 2011 of 8.5 billion euros, according to the average of 21 estimates compiled by Bloomberg.
“They inserted a hint to volatility and risks in their outlook, and therefore make themselves a bit more dependent on market developments,” said Tim Schuldt, an analyst with Equinet in Frankfurt. “It’s not ruled out that they may have to make an adjustment in the course of the year.”
Mercedes-Benz Cars, which also includes the Smart city-car brand, posted a 16 percent drop in Ebit to 1.31 billion euros, while sales rose 5 percent to 15.4 billion euros. The second- quarter margin narrowed from 10.7 percent a year earlier. The full-year margin in 2011 was 9 percent.
Investments in production assets will rise this year by 1.5 billion euros, and research and development spending will increase by another 500 million euros, Chief Financial Officer Bodo Uebber said on the call.
First-half Mercedes-Benz car deliveries rose 6.9 percent to a record 652,924 vehicles, boosted by demand for the revamped B- Class compact. The company expanded capacity for a new version of its A-Class hatchback with an agreement signed yesterday with Finland’s Valmet Automotive Inc. to produce more than 100,000 vehicles from 2013 through 2016. Daimler has more than 40,000 orders for the car, which goes on sale in September.
“We realized demand was outgrowing our original planning,” Zetsche said. Producing at Valmet allows higher volumes with “little addition to fixed costs,” he said.
Still, Mercedes has struggled to keep pace with rivals. BMW sales rose 8.3 percent to 747,064 vehicles in the first six months of 2012, while Audi’s deliveries surged 12 percent to 733,250 cars and SUVs.
Car pricing at Mercedes has probably “deteriorated significantly,” Arndt Ellinghorst, a London-based analyst with Credit Suisse, said in a note. “Whilst the magnitude of impact may not be as large, BMW and Audi are unlikely to be immune.”
Volkswagen, based in Wolfsburg, Germany is scheduled to publish second-quarter figures tomorrow. Munich-based BMW plans to report on Aug. 1.
Daimler’s truck division increased second-quarter Ebit by 8 percent to 524 million euros as revenue jumped 22 percent to 8.13 billion euros, propelled by demand in North America and Asia. The unit’s performance contrasts with Volvo AB (VOLVB)’s 4.1 percent decline in Ebit in the period.
“We saw a good development in the U.S. and Japan, not only because the markets improved but also relative” to competitors, Zetsche said. Sales of the Actros new heavy-duty truck helped the company outperform in a weak European market, he said.
The bus unit posted an operating loss of 57 million euros, including 46 million euros in costs for repositioning the business which entails closing the Orion brand in North America.
The bus operation’s performance is expected to improve in the third and fourth quarter, Andreas Renschler, Daimler’s chief of commercial vehicles, said on the call. He reiterated a margin target that stands at an average of 6 percent starting 2013.
Daimler has increased its stake in its Chinese import and marketing organization to 75 percent from 51 percent, Zetsche said. The company wants to create a legal entity to sell imported and locally produced cars to tackle marketing flaws.
“In the markets outside China, we saw higher growth rates than Audi or BMW,” Zetsche said. “With our altogether older model lineup, we are very successful.”
Daimler is in “constructive” talks to complete the sale of its 7.5 percent stake in planemaker Airbus’s parent European Aeronautic, Defence & Space Co. (EAD) to Germany by the end of 2012, Uebber also said today.
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