Daimler Sees Better Second-Quarter Earnings on Cost Cuts

Daimler AG Chief Executive Officer Dieter Zetsche said earnings have improved in the second quarter as new models win buyers and the Mercedes-Benz car unit reduces costs faster than anticipated.

“We are progressing better than expected” with a two-year spending-cut program, Zetsche said today at an event in Sindelfingen, Germany. “We will see a positive earnings development in the second quarter.”

Daimler, based in the nearby city of Stuttgart, has a target of cutting costs by 2 billion euros ($2.67 billion) by the end of next year, with one-third of the savings to be achieved in 2013. Mercedes, the world’s third-largest maker of luxury cars, has received 12,000 orders for the new-generation S-Class sedan in the last four weeks, the CEO said at ceremony today marking the start of the vehicle’s production.

Mercedes is counting on its flagship model, which has been the biggest seller among high-end sedans since it went on the market in 1972, to boost profitability. Zetsche has vowed to surpass Bayerische Motoren Werke AG and Volkswagen AG’s Audi in sales and profit by the end of the decade. In the first quarter, Mercedes’s operating profit was 3.3 percent of sales, versus margins of 11.1 percent at Audi and 9.9 percent at BMW.

‘Dramatically Bad’

“The first quarter was so dramatically bad that anything but an improvement would be a catastrophe,” said Juergen Pieper, a Frankfurt-based analyst at Bankhaus Metzler, said by phone. “Daimler’s results were far off the competition. The company has lost the status of a luxury carmaker.”

Daimler’s first-quarter earnings fell 56 percent to 917 million euros. Sales contracted 3 percent to 26.1 billion euros.

Zetsche, who has twice abandoned a target of reaching a 10 percent operating margin at the Mercedes automotive division, said he couldn’t estimate whether the unit might reach the goal, most recently set for this year, in 2014.

Daimler fell 2.1 percent to 47.17 euros at the close in Frankfurt, the lowest price since May 15. That pared the stock’s gain this year to 14 percent to value the company, which is also the world’s biggest maker of commercial vehicles, at 50.4 billion euros.

The revamped S-Class will reach German showrooms on July 20 and roll out in other markets in the weeks after that.

S-Class Image

“The S-Class is contributing positively to the profitability of the brand,” Zetsche said. “Moreover, the new model is contributing to the development of the image of the brand and has a halo effect on the whole vehicle line-up.”

The company is investing more than 1 billion euros this year in the Sindelfingen site, the only manufacturing facility of the S-Class globally.

The European car market is “bottoming out” and a “slight recovery” is possible in the region in the second half of the year, Zetsche said. Luxury-car demand in China will continue to outpace the industrywide growth in the S-Class’s biggest market, he said.

Mercedes’s deliveries in May rose 7.3 percent from a year earlier to 121,360 cars and sport-utility vehicles, propelled by a 66 percent surge in compact-model sales. Audi’s sales rose 6.4 percent to 137,200 vehicles, while BMW deliveries advanced 7.8 percent to 139,161 autos. Through the first five months of 2013, BMW sold 11,000 more vehicles than Audi and 88,000 more than Mercedes.

Zetsche plans to introduce 13 models with no predecessor in the next eight years to catch up with BMW and Audi, which are also expanding offerings. Audi started production today of the new A3 sedan in Hungary and BMW will roll out the i3, its first electric car, later this year.

Daimler forecasts that 2013 earnings will fall short of last year’s figure. Vehicle sales and revenue are expected to increase.

(Updates with closing share price in eighth paragraph.)
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