Daimler Earnings: Mercedes-Benz Sales in U.S., Germany, China Drive Results

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DAI
DAIMLER AG

Daimler AG (ETR:DAI) is due to announce its 2011 Q2 earnings on Wednesday (7/27). Mercedes-Benz sales achieved record sales of nearly 330,000 units in Q2, up 7.2% year-on-year (yoy). [1] This was driven by high growth in sales in BRIC countries, the U.S. and Germany. We estimate that Mercedes-Benz contributes about 36% of Daimler’s stock price and thus the record sales of Mercedes-Benz along with significant growth in Daimler truck sales to power a significant year-on-year increase in Daimler’s quarterly earnings in Q2 2011. Daimler brands such as Mercedes-Benz, Smart, Maybach and Daimler compete globally with the likes of BMW (GR:BMW), GM (NYSE:GM), Ford (NYSE:F),  Honda (NYSE:HMC) and Toyota (NYSE:TM) among others.

We currently have a price estimate of $63.20 for Daimler’s stock, about 15% below market price.

BRIC Leading the Demand for Mercedes-Benz

Mercedes-Benz sales growth in Q2 was led by BRIC countries. Rapid economic expansion, increasing disposable income, new models such as the C-class coupe (launched in May’11) and great brand recognition enjoyed by the Mercedes brand in these countries contributed to the sales growth.

China, in particular, is among the three most important markets for Daimler. Mainland China saw almost 60% yoy growth in Mercedes car sales in the first half of 2011 led by demand surge for S-Class, C-Class and GLK SUV. Daimler will start producing GLK for the Chinese market later this year and start local production of three new compact cars from 2013. This will help the brand continue growing its volumes in future.

Good Product Mix Selling Well

In the first half of 2011, Mercedes-Benz remained the best-selling premium brand in Germany, its largest market, and grew by 7% yoy in the U.S., its second largest market. The main drivers for this growth was a good mix of products, such as the new-generation C-Class, S-Class sedan and GLK SUVs, which contributed in stimulating demand. In the U.S., C-Class and E-Class led the sales.

The market launch of M-Class this fall in Western Europe will aid the global growth in sales of Mercedes-Benz as well.

We expect sales of Daimler trucks to increase in Q2 because of continued expansion in Asia (except Japan), significant growth in North America based upon Daimler trucks’ strong order book and growing market share, in addition to growth in Western Europe in line with market expansion.

Investments Could Weigh on Margins in the Mid-term

In Q2 Daimler and Rolls Royce, together acquired Tognum, which will likely affect Daimler’s margins negatively.

Daimler is investing heavily to expand its presence in China. Towards the end of Q2, Daimler agreed to invest 2 billion Euros (about $2.9 billion) along with its joint venture partner BAIC. [2] The investment is for setting-up a R&D center, an engine plant and facilities for local production of several compact cars and GLK SUV in China. Though these costs will not affect earnings and margins in Q2, they could weigh on profit margins in the mid-term.

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You can drag the trend lines in the modifiable charts above to see the impact of these trends on Daimler’s stock value.

See our full analysis for Daimler’s stock here.

Notes:
  1. Mercedes-Benz : Best Quarter in the Company’s History []
  2. Daimler Expands Activities in China []