Daimler Taps Brakes On Guidance As Margins Fall And Europe Stalls

by Trefis Team
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Trefis
DAI
Daimler AG
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Daimler AG (NYSE:DAI) announced its Q4 and full year results Thursday on February 7. Full year revenues grew 7% to 114.3 billion euros ($153 billion), but profitability was down as tough market conditions eroded the automaker’s margins. Operating margins fell 80 basis points to 7.5%, and the company’s net income stood at 6.5 billion euros ($8.7 billion), including a one time gain of 709 million euros from the sale of EADS.

Mercedes-Benz, which accounts for the majority of the revenues, sold 4.5% more cars in 2012. In addition to Mercedes, the company also sells trucks and buses under the Daimler brand. Truck sales were up 9% though bus sales tanked 19%. [1]

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Profitability Still An Issue

Mercedes-Benz’s operating margins fell to 5.3% in the fourth quarter. Furthermore, Daimler warned that tough economic conditions in Europe combined with the ongoing reshuffling of its Chinese operations will prevent the margins from improving before the second half of 2013. Daimler’s Chinese sales slowed down in 2012, largely due to mismanagement of its sales and distribution networks.

For 2013, the automaker now assumes the operating income to be similar to that in 2012. This guidance assumes recovery in the second half of the year. The management was particularly optimistic for 2014, when the refreshed models of two of its flagship models, the E-Class and the C-Class, will help lift pricing.

Daimler had already warned in October that due to a slowdown in Chinese sales and a deteriorating market in Europe, it will fail to meet its previously stated earnings guidance. Mercedes is not alone in suffering from the European crisis.

While the luxury car market was largely unaffected by the weak European sales in the first half of the year, things turned gloomier in the second half of the year. Margins fell for Volkswagen and BMW as well. However, its full year operating margins still hover around 10% compared to 7% for Mercedes. [2]

We have a price estimate of $56 for Daimler’s stock, but we are in the process of revising our estimates in order to incorporate the latest earnings.

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Notes:
  1. Daimler Investor Relations []
  2. Daimler Wary as Europe, China Dent Results, February 7, 2013, wsj.com []
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