Daimler Reports Strong Quarterly Earnings, Boosted By One-Time Gains

Things are finally looking up for Daimler AG (NYSE:DAI) as the automaker posted a strong set of numbers in its second quarter. Since the beginning of the year, Daimler’s management has been adamant that the second half of the year will be better than the first. This is mainly because of new introductions and model refreshments lined up for 2013, mostly in the summer and the fall. The product offensive is part of Mercedes’ strategy to regain the crown of the world’s largest automaker by 2020. Meanwhile, the automaker does not expect the impact of the reinvigorated portfolio to be felt before the second half of the year.

During the quarter, Daimler’s revenues rose 3% to 29.7 billion euros ($39.4 billion) while the operating income more than doubled to 5.2 billion euros ($6.9 billion). However, this figure includes a one-time gain of the sale of the EADS division. Excluding one-time items, Daimler’s operating profits would have been about 2 billion euros ($2.6 billion). Sales of the cars and vans sold under the Mercedes-Benz brand were up 7.8% to 474,147 units. Overall, Daimler group’s unit sales were up 6% to 605,823 units. ^[1]

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Profitability Improves

Daimler’s profitability been under scrutiny lately. Mercedes’ margins had been falling with each quarter and stood at 3.4% in the first quarter of 2013. On the other hand, Audi and BMW regularly clock operating margins in excess of 10%. However, the margins recovered strongly to 6.6% in the second quarter.

There could be still some room for improvement in the upcoming quarters as the new models could help lift the pricing and boost the sales. Any surge in the unit sales will leverage the fixed costs, and consequently improve profitability. Moreover, in the absence of one-time costs, margins stand to benefit.

Line Up For 2013

In the U.S., the automaker unveiled the pricing of its revamped E-Class last month. ^[2] Mercedes has also introduced an all new vehicle called the CLA, the price of which starts from $29,900. The CLA will help the company compete directly against the likes of BMW’s 1-series and 3-series, and Audi’s A3 and A4, which are hugely popular with the younger demographic. Sales will only begin from September so the automaker could witness a strong run in at the end of the year.

Besides the E-Class and the SLA, the refreshed S-Class will also be rolled out in the U.S. by fall. Mercedes’ sales are up 10% through June in the U.S. Moreover, the recent introduction of the A-Class in China should keep the sales rolling in the latter half of the year.

Cars and vans sold under the Mercedes brand account for more than 70% of the valuation, as per our estimates.

Management was also optimistic about Western Europe’s automotive market citing that it had bottomed out. The region accounts for about half of Mercedes’ sales, and is critical to the automaker’s profitability. Mercedes’ sales were up 5% in Western Europe, but were down 1% in Germany. Overall, Daimler expects the global automotive market to rise by 2-4% this year, led by China and the U.S.

A number of automakers including Ford, GM and Peugeot are posting losses in Europe. As a result, the companies which are doing well in the U.S. or China, are the ones that are in a healthy condition right now. Daimler is one of them.

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1. Daimler Investor Relations [↩]
2. 2014 Mercedes-Benz E-Class Pricing Announced, June 17, 2013, edmunds.com [↩]