Daimler Posts Q2 Net Profit of 1.3 Bil. Euro, Targets Best Full-Year Results Since 2007

The Daimler Group has posted extremely robust audited second-quarter financial results as the company continues to stage a marked recovery from the extensive losses it posted in 2009. The company recorded a second-quarter net profit of 1.312 billion euro (US$1.705 billion) for the period, which compares with a net loss of 1.062 billion euro during the equivalent period last year. The second-quarter net profit was more than double the 612-million-euro net profit posted during the first quarter (see World: 28 April 2010: Daimler Posts Q1 Net Profit of 612 mil. Euro, Raises Full-Year EBIT Forecast to 4 bil. Euro), which indicates growing momentum on the back of a strong recovery in the global premium car and heavy-truck market. Commenting on the results in a company statement, Daimler chief executive Dieter Zetsche said, "Our strategy is paying off: We have a very dynamic development of unit sales and revenue in all divisions. After what was already a very good first quarter, we achieved excellent results in the second quarter." On the company's targets and forecast for the rest of the year, Zetsche said, "We anticipate significant revenue growth in 2010 and we are targeting EBIT from the ongoing business of €6 billion." The company posted earnings before interest and taxes (EBIT) during the same period of 2.104 billion euro, which again was a marked improvement on the 1.005-billion-euro loss that the group posted in the same period last year. In terms of group sales volumes, Daimler sold 496,500 units in the second quarter, including passenger cars and commercial vehicles. This represented a 27% year-on-year (y/y) increase. Likewise, as would be more or less expected, the development of the company's second-quarter revenues followed this trend, with revenues increasing by 28% y/y to 25.1 billion euro, up from 19.6 billion euro during the same period last year.

On a unit-by-unit basis, the company's Mercedes-Benz Cars unit contributed the largest proportion of the company's overall profit figures, in line with its position as the company's largest single unit. The unit's sales during the period rose by 19% y/y to 342,500 units, which included the strongest ever second-quarter sales result for the Mercedes-Benz brand. However, sales of the Smart ForTwo were down to 27,100 units from 33,500 units recorded in the same period last year. The model's second-half performance should improve mildly as a result of a newly introduced facelifted version. Mercedes-Benz Cars posted a substantial 33% y/y improvement in its revenues to 14.0 billion euro, with the unit seeing a marked improvement in its model mix, with strong E-Class and S-Class sales. This figure was also aided by better pricing, cost-cutting, and positive exchange-rate effects. EBIT rose to 1.376 billion euro after the unit recorded a negative EBIT figure in the same period last year.

Daimler Trucks also recorded a positive second-quarter result, with sales increasing by 55% y/y to 83,800 units. All of the company's major markets contributed to this result following the marked slump experienced by the industry in 2009. The unit's second-quarter revenues of 5.9 billion euro compared extremely favourably with the prior-year figure of 4.2 billion euro. The truck unit also posted an increase in EBIT to 300 million euro, in comparison to a loss of 508 million euro in the same period of last year. The major influence on Daimler Trucks' positive financial performance was of course the substantial uplift in sales, but the company also reduced costs through increased efficiency programmes via the reorganisation of its Daimler Trucks North America and Mitsubishi Fuso Truck and Bus Corporation subsidiaries.

Outlook and Implications

Daimler AG's second-quarter results show a company that has taken strong action to manage its cost base and enhance efficiencies throughout the downturn, and it is now doubly reaping the benefits as a result of the extremely robust recovery in the global premium passenger car market and the truck market. In actuality, the extremely strong performance in China that the premium passenger car market is currently enjoying has been the main catalyst for the uplift in the performance of the Mercedes-Benz Car unit; and although the Chinese market as a whole remained largely impervious to the global recession in 2009, the increase in demand for premium cars has further accelerated in 2010. Mercedes-Benz posted a 120% y/y increase in sales to 60,500 units in China during the first six months of the year. As a result, the uplift in sales in China was responsible for more than half the total increase in volumes experienced by the Mercedes-Benz Car unit in the first half of 2010. Sales momentum has also gathered pace throughout the year, with June proving to be a record sales month for Mercedes-Benz Cars. Daimler is forecasting that the combined sales total for all its vehicle units will rise significantly from the 1.6 million units recorded in 2009 as a result of this strong performance.

As a result of this, Daimler has once more increased its full-year 2010 earnings forecast, for the third time. The company is now targeting a full-year EBIT figure of 6 billion euro. Daimler has based this expectation on what it sees as a stable economic environment and continuing demand for the company's youthful and well-received model range, with the E1-segment E-Class leading the way since its launch at the end of the first quarter of 2009. Mercedes-Benz Cars announced this week that since its launch the model has posted sales of 300,000 units, with Joachim Schmidt, executive vice-president for sales and marketing for Mercedes-Benz Cars, claiming, "The new E-Class is a great success, setting standards not only for safety, comfort and efficiency, but also for market acceptance. This is demonstrated by the fact that each of the four models—the sedan, the estate [station wagon], the coupe, and the convertible—is currently the world's best-selling vehicle in its comparative class. We are delighted about the positive customer response to the new E-Class models since they are essential to the success of Mercedes-Benz."

Although there is little doubt that the E-Class has been an unequivocal success since its launch, the fact that Daimler has increased its earnings projection for the third time this year is likely to irritate shareholders, banks, and financial institutions. The company has already attracted criticism from stock analysts (see Germany: 21 April 2010: Investors Unhappy with Daimler's Guidance and Communication) for what they perceive as inaccurate guidance following earlier upgrades. However, investors are unlikely to be too disheartened at such a sizeable uplift in the full-year EBIT forecast and Daimler's management team will deal with any fallout. However, Daimler appears to contradict itself somewhat in its press release on its second-quarter results when it states that "the continuation of a stable economic development" will underpin ongoing strong results in the second half of the year while at the same time claiming that risks remain in the potential "worsening of the macroeconomic" environment. IHS Global Insight believes that China's current double-digit percentage economic growth will moderate to high single-/low double-digit rates in 2011. However, the recovery in the U.S. premium passenger car market could slow substantially in the second half if extremely negative data relating to the U.S. housing market are any indicator of the short-term spending power of U.S. consumers.