Daimler reported a 71 percent gain in first-quarter operating profit

Article by Christian Andrei, on April 28, 2011

Daimler AG revealed a gain of 71 percent on its operating profit for the first quarter of 2011. One contributing factor identified is the increasing wealth in China that has boosted sales of the Mercedes-Benz S-class sedan. Specifically, the company’s earnings before taxes and interest reached 2.03 billion euros ($3.01 billion) compared to the 1.19 billion euros recorded on the same period last year.

The company’s result is at par with the 2 billion euro average from the estimates of 12 analysts compiled by Bloomberg. The company achieved sales of 24.7 billion euros, a 17 percent gain. Daimler remained firm to its estimate for “significantly” higher 2011 EBIT compared to the 7.2 billion euros from last year.

Daimler is expecting its sales prospects for Mercedes-Benz's revamped SLK roadster and updated C-class sedan to outperform the potential effects of the March 11 earthquake in Japan. The company’s net income increased almost 100 percent to 1.18 billion euros for the first quarter.

The positive economy in China is increasing demand for automobiles from Volkswagen AG's Audi, Mercedes and BMW AG, which are the top three automakers of luxury cars. They are also targeting record sales this 2011.

Furthermore, the Lamborghini supercar brand from VW is expected to sell more units in China than in the United States in 2011 for the first time. As for Daimler, the company is targeting to hit 1.5 million cars in deliveries by 2015, supported by a doubling of sales in China to 300,000 vehicles.

The 125-year-old German vehicle manufacturer is contemplating on selling more than 1.3 million Mercedes-Benz and Smart cars this 2011 versus the 1.28 million last year. First-quarter deliveries increased 13 percent to 281,000 units, with the 78 percent surge in demand and the 25 percent jump in S class deliveries in the Chinese market as contributing factors.

Mercedes-Benz Cars has built on the success it enjoyed in 2010 by posting further business growth figures for the first quarter of this year. Car unit sales showed a 12% increase to 310,700 from 277,100 in 2010 Q1. Corresponding first-quarter revenue also rose 20% to euro 13.9 billion.

Mercedes-Benz Cars posted a first quarter EBIT of euro 1,288 million, equivalent to a 60% increase from the prior-year period. This is marked by a 9.3% return on sales compared to 7.0% for Q1 2010.

Increased unit sales from the SUV, premium and luxury car segments were the major contributors to the company’s increased earnings. Geographically, the Chinese market was the notable performer as Mercedes-Benz’s renowned vehicle lines attracted the country’s high-end consumers. The excellent product selection with competitive pricing worked with the country’s strong currency as positive factors in the company’s performance.

On the other hand, there was increased spending due to more expensive raw materials, higher research and development costs, and more extensive resource usage for facilitating new vehicle ramp-up. These were the negative factors for the company.

Daimler Trucks was also a strong performer in 2011 Q1, with unit sales increasing 27% to 89,300, and revenue up by 28% to euro 6.2 billion.

The division also posted a marked EBIT increase to euro 415 million from the prior-year euro 130 million. Return on sales went up to 6.6% from the prior-year 2.7% figure.

Daimler’s business development, especially in the American and Western European markets, was seen as the primary factor for its earnings growth. This was sufficient to offset the negative factors for earnings for the first three months of 2011, which included increased advanced product marketing and promotional expenditure. The earthquake in Japan also caused earnings charges worth euro 49 million accounted for in the first quarter of 2011, mostly due to production losses and damaged assets in March 2011.

Mercedes-Benz Vans also showed growth in terms of year-on-year unit sales, where figures posted were 16% better. 54,000 Sprinter, Vito/Viano and Vario models were sold in Q1 2011. Revenue rose to euro 2.0 billion from the prior-year’s euro 1.7 billion.

Press Release

Excellent first quarter of 2011: Daimler increases EBIT by 71% to Euro 2 billion

Daimler AG (stock-exchange symbol DAI) made an excellent start to the year 2011: Earnings before interest and taxes (EBIT) for the first quarter amounted to euro 2,031 million (Q1 2010: euro 1,190 million), which is 71% above the figure for the prior-year period.

The positive EBIT development led to a significant improvement in net profit to euro 1,180 million (Q1 2010: euro 612 million). Earnings per share increased to euro 0.99 (Q1 2010: euro 0.65).

"We achieved excellent earnings in the first quarter. This puts us well ahead of our planning and confirms our positive outlook for the year 2011," stated Dr. Dieter Zetsche, Chairman of the Board of Management of Daimler AG and Head of Mercedes-Benz Cars.

"We are on the right track. We want to delight our customers with fascinating products and strong brands, and we intend to continue our profitable growth. To go new ways successfully, we are building on our proven strengths: continuous innovation, new technologies and an outstanding team. We are consistently implementing this strategy," stated Zetsche.

The very positive development of earnings is a reflection of the ongoing upward trend in nearly all the Daimler Group's divisions. Mercedes-Benz Cars, Daimler Trucks and Mercedes-Benz Vans increased their unit sales compared with the prior-year period in all major regions. Daimler Financial Services profited in particular from lower cost of risk.

In connection with the natural disaster in Japan, expenditures of euro 49 million were recognized at Daimler Trucks and euro 29 million at Daimler Financial Services; any insurance compensations have not yet been taken into consideration.

Daimler will remain watchful in the future, so that it can react quickly and flexibly to global challenges such as the tragic disaster in Japan.

The special items that affected EBIT in the first quarter of 2011 and 2010 are shown in the table below.

Group unit sales up by 15% in the first quarter

In the first quarter of 2011, Daimler sold 461,700 cars and commercial vehicles worldwide, surpassing the prior-year figure by 15%. The Group's first-quarter revenue increased by 17% to euro 24.7 billion. Adjusted for exchange-rate effects, revenue grew by 15%.

The net liquidity of the industrial business increased to euro 12.4 billion as of March 31, 2011.

At the end of the first quarter of 2011, Daimler employed 261,718 people worldwide (March 31, 2010: 254,779). Of that total, 164,131 people were employed in Germany (March 31, 2010: 161,449).

Details of the divisions

Mercedes-Benz Cars continued its very good business development of 2010 in the first quarter of this year. The car division increased its unit sales compared with the prior-year period by 12% to 310,700 vehicles (Q1 2010: 277,100). First-quarter revenue increased by 20% to euro 13.9 billion.

With EBIT of euro 1,288 million in the first quarter, the Mercedes-Benz Cars division improved its earnings compared with the prior-year period by 60%. Its return on sales was 9.3% (Q1 2010: 7.0%).

The main factor contributing to this earnings improvement was further growth in unit sales, especially in the premium and luxury segments and with SUVs. Especially in China, the Mercedes-Benz Cars division was able to significantly increase its unit sales due to its attractive product portfolio. The very good product mix and improved pricing as well as positive currency effects also contributed to the strong earnings.

There were negative impacts on earnings from increased prices of raw materials, increased use of resources in connection with the ramp-up of new vehicles, as well as from higher research and development expenditure.

Daimler Trucks posted significant growth in unit sales in the first quarter of 2011: The number of trucks sold increased by 27% to 89,300 units. Revenue of euro 6.2 billion was 28% higher than in the first three months of last year.

The division's EBIT of euro 415 million was also significantly better than the prior-year earnings of euro 130 million. The return on sales was 6.6% (Q1 2010: 2.7%).

This earnings improvement is primarily due to the good business development, in particular in the markets of Western Europe and the United States. There was an opposing, negative impact on first-quarter earnings from high advance expenditure for the current product offensive. Due to the natural disaster in Japan, charges on earnings of euro 49 million were recognized in the first quarter of 2011. These charges are primarily related to damaged assets and production losses in March 2011.

Mercedes-Benz Vans increased its unit sales compared with the first quarter of last year by 16% to 54,000 vehicles of the Sprinter, Vito/Viano and Vario models. Revenue of euro 2.0 billion was also significantly higher than the prior-year figure of euro 1.7 billion.

The division achieved an operating profit (EBIT) of euro 173 million (Q1 2010: euro 64 million). Its return on sales improved to 8.8%, compared with 3.8% in the first quarter of last year.

The positive development of earnings was mainly the result of the ongoing market recovery and significantly higher unit sales, especially in Germany, China and Turkey.

Worldwide unit sales by Daimler Buses of 7,700 buses and bus chassis were below the prior-year figure of 8,400 units. Revenue amounted to euro 831 million (Q1 2010: euro 1,011 million).

The division's EBIT amounted to minus euro 33 million (Q1 2010: plus euro 41 million) and its return on sales was minus 4.0% (Q1 2010: plus 4.1%). Due to lower unit sales (-8%), the division was unable to match the earnings achieved in the prior-year period. The business with complete buses in Western Europe and North America was particularly affected, as the development of the city-bus segment was significantly weaker than in the prior year for market reasons. In Latin America, the prior-year quarter had been positively affected by deliveries on major orders. Negative currency effects also contributed to the drop in earnings.

At Daimler Financial Services, worldwide contract volume decreased compared with the end of 2010 by 3% to euro 61.7 billion. Adjusted for exchange-rate effects, contract volume was almost unchanged. New business developed positively and grew compared with the first quarter of 2010 by 11% to euro 6.9 billion, or by 8% after adjusting for currency effects.

With EBIT of euro 321 million, the division significantly surpassed its earnings of the prior-year period (Q1 2010: euro 119 million). The improvement in earnings was mainly caused by lower risk provisions and higher interest margins. Due to the natural disaster in Japan, write-down charges of euro 29 million were recognized for anticipated losses of receivables.

The reconciliation of the divisions' EBIT to Group EBIT primarily reflects the proportionate share of the Daimler Group's equity-method investment in EADS, as well as other gains and losses at the corporate level.

In the first quarter of 2011, Daimler's proportionate share of the net result of EADS amounted to a profit of euro 74 million (Q1 2010: loss of euro 269 million). The prior-year loss was primarily the result of provisions recognized by EADS relating to the A400M military transport aircraft.

The reconciliation also includes expenses of euro 191 million at the corporate level (Q1 2010: income of euro 26 million), partially related to legal proceedings.

Outlook for 2011 affirmed

Based on current estimates, the Daimler Group expects to post significantly higher EBIT from its ongoing business in 2011 than in 2010. Developments in the first quarter have shown that Daimler continues to make good progress toward the targeted rates of return that it intends to achieve on a sustained basis as of the year 2013.

Following the substantial increase in 2010, Daimler expects its total revenue to continue to grow in 2011. That growth will probably be driven by all the automotive divisions. On the basis of the divisions' planning, Daimler anticipates a significant increase in total unit sales (2010: 1.9 million vehicles).

In view of the continuation of generally good market prospects combined with numerous model changes and new products, Mercedes-Benz Cars assumes that the Mercedes-Benz brand will increase its unit sales to a new record of more than 1.2 million cars in 2011. Thanks to its up-to-date and competitive model range, the division will profit also in the year 2011 from strong demand for the E-Class models and from the market success of the S-Class. Unit sales in the remaining quarters of 2011 will continue to be above the volumes of the prior-year periods.

The new-generation C-Class sedan and station wagon and the new SLK roadster have been providing additional sales impetus since late March 2011. The C-Class coupe will be launched in June, followed by the new model of the M-Class in September and the roadster version of the Mercedes-Benz SLS AMG in the fourth quarter. And in November, the division will launch the new B-Class – the first of four new models in the compact-car segment. For the smart brand, unit sales are anticipated at roughly the same level as in 2010 due to the full availability of the new generation of the smart fortwo.

At the same time, in order to secure its growth, Mercedes-Benz Cars is investing in the expansion of its production network, continuing its product offensive and intensifying the development of new technologies. This includes the joint venture between Daimler and Toray to produce and market automotive parts made of carbon fiber and the cooperation with Bosch on the development of electric motors for cars.

Daimler Trucks assumes that it will increase its unit sales substantially in 2011. Aided by the general economic recovery and the expected related growth in demand for transport services and vehicles, most of its major markets will grow at significant rates.

The division will participate in the continuous market growth in Western Europe and will maintain its leading position in the heavy- and medium-duty segment. For the NAFTA region the sales forecast is supported by market share gains in all of Classes 6-8, as well as the excellent order situation. Following the recent events in Japan, the situation in that market is very difficult and hard to forecast due to the lack of clarity about future developments. But Daimler Trucks will strengthen its position in other parts of Asia, especially in the large Chinese market and in other fast-growing emerging markets.

In addition, capacities in Brazil and Turkey are being expanded, thus improving the availability of trucks in those markets.

The division anticipates further growth in unit sales in the coming quarters compared with the prior-year periods. This assessment is supported by the current order situation. At the Daimler Trucks division, orders received by Trucks Europe/Latin America increased by a double-digit percentage and at Trucks NAFTA they actually quadrupled compared with the prior-year quarter.

The Mercedes-Benz Vans division also expects to achieve further growth in unit sales in full-year 2011, on the basis of the ongoing recovery of its most important markets. The launch of the Sprinter in China and the adjustment of production capacities in Argentina will additionally contribute to that growth.

Daimler Buses expects to sell more than 40,000 complete buses and bus chassis in the year 2011. However, the increase will be due solely to the positive development of chassis sales in Latin America. The business with complete buses in Europe and North America is likely to remain weak.

Daimler Financial Services anticipates a further increase in its worldwide contract volume and new business in full-year 2011. Credit-risk costs are expected to stabilize this year, also interest rates are likely to increase.

Due to the strong demand for its products, the Daimler Group assumes that the worldwide number of employees will increase compared with the number at the end of 2010.

Topics: daimler, profit

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