Daimler Shows Mixed Results But Still A Bargain

Daimler (NYSE:DAI) delivered mixed first quarter results. While the sales of Mercedes Benz vehicles have performed well as expected, the profits have stagnated which is a concern. The company cited high capital investments in new technology, new models and capacity expansion as the main reason for declining profits, but believes that these investments will help it meet its 2013 profitability target. However, there were no solid improvements to support that it will achieve this goal.

Daimler delivered 502,100 vehicles in the first quarter, an increase of 9% over the prior year period. Revenue was up by 9.3% while net income increased by almost 20%, mainly related to profit from its stake in EADS. The company’s quest to become the top car maker in the luxury car segment by 2020 looks challenging, as competitor Volkswagen marched ahead of it this quarter to take the second spot. The company has, however, indicated that it is firmly on track to achieve its outlook for the present year.

Daimler’s Mercedes-Benz competes globally with 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 $72 for Daimler’s stock, which is well above its market price.

See our full analysis for Daimler’s stock here

Mercedes Benz car profits saved by increased sales volume

The operating income of Mercedes Benz car segment fell marginally from its prior year levels of 1.29 billion euros to about 1.25 billion euros as the company opened a new €800 million car factory in Kecskemet, Hungary, and made investments to launch new models. Profit was also affected by the “usual seasonal development,” with higher costs required to build inventory for the spring car-selling season in the second quarter. The sales volume, which was up by almost 9%, was a positive which offset other negatives to maintain EBIT at previous year levels. The weakness in China market was offset by slight gains made in the U.S. and Germany markets.

Poor performance by Daimler trucks and vans

The sales of Daimler trucks increased by almost 21% on the strength in Asia and NAFTA regions. Latin America sales were weak but are expected to pick up in the coming quarters. The division’s profits dropped considerably from 6.6% to 5.2% in spite of the increase in sales and previous year figures that accounted for the impact of the earthquake in Japan. This drop in profitability was primarily due to discounting of non-current provisions with lower interest rates  and increase in costs related to the launch of new products.

Daimler Vans was the worst performing division for the company as both sales and profitability went south. While the sales were down by 5%, profits declined from 8.8% to 8% due to lower unit sales, poor model mix, and high R&D costs.

Daimler buses continues to struggle

Daimler persists with its efforts to reposition its bus business in Europe and North America. The repositioning, however, is expected to take some time. Meanwhile, the company continues to record strong declines in sales and profits. Daimler bus sales declined by 36% as Latin America registered a huge drop in demand. The segment’s profits dropped from -4% to -14.1% as the decline in sales coupled with capital investments to support repositioning ate away most of the revenues.

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