Daimler AG Reports Strong Sales Growth But Margins Remain A Worry

Daimler AG (NYSE:DAI) reported impressive Q2 sales buoyed by a strong North American performance. Total revenue for the quarter grew 10% to €28.9 billion, partially helped by currency translations. However, net income dropped to €1.51 billion or an EPS of €1.34 vs €1.51 in the previous year quarter. Profits was down partly due to lower pricing power and partly due to higher expenses. Total vehicles sales (cars and commercial vehicles combined) jumped 8% to 570,300 vehicles. ^[1]

We currently have a price estimate of $72 for Daimler’s stock, and we are in the process of revising our estimates to incorporate Q2 earnings.

Margins Drop for Mercedes-Benz

Although revenues for Mercedes-Benz cars, the automaker’s biggest division, rose 5%, operating income dropped more than 15% to €1.31 billion as the company cited additional expenses related to capacity expansion and launch of A-class and B-class cars for the drop in margins. Similarly, operating income for Mercedes-Benz vans declined 4% despite the revenues rising by 8%.

Despite the European economic uncertainty, global demand for luxury cars continues to remain strong as sales in North America and China surge. In the first six months of the year, vehicle sales for Audi and BMW jumped 12% and 8.3%, respectively, but Mercedes-Benz’s sales only grew 6.9%. Besides the higher sales, Mercedes-Benz’s rivals also have higher margins. But Mercedes-Benz is determined to close down the gap with the competitors by focusing more on the compact car segment. It recently announced plans to double its investment in the Rastatt plant in Germany to €1.2 billion to take on Volkswagen AG and BMW. Moreover, Mercedes-Benz has already received 40,000 orders for its new A-class, which goes on sale starting September. ^[2]

Daimler Trucks Perform Strongly

Total trucks sold by Daimler in the quarter surged 34%, which helped the revenue grow by 22% to €8.1 billion. Demand for trucks was particularly strong in the North America and Japan markets. But, just like with its cars division, profits could not keep pace with the revenue growth. Operating margins dropped to 6.4% from 7.3% in the previous year quarter. Sales in the subsequent quarter could get a boost from its new truck line named Antos, aimed to cater to the needs of short-radius distribution industry. Daimler is also betting on the BharatBenz line of trucks under which the automaker will launch 17 different models, designed specifically for the Indian market, by 2014.

Understand How a Company’s Products Impact its Stock Price at Trefis

1. Daimler Investor Relations [↩]
2. Daimler Second-Quarter Profit Falls On Model Investments, July 25, bloomberg.com [↩]