Stephen Pope Comments: Daimler Targets Profit Following Savings - Bloomberg News Online
Bloomberg News Online, October 27, 2009
Daimler AG, the maker of Mercedes- Benz cars and trucks, predicted operating earnings for the last three months of 2009 after spending cuts and growth in sales of the E-Class sedan led to its first quarterly profit in a year. Third-quarter net income fell 80 percent to 41 million euros ($61 million), or 4 cents a share, from 200 million euros, or 21 cents, a year earlier, Stuttgart, Germany-based Daimler said today in a statement. The company reiterated that it will reduce costs this year by more than 4 billion euros.
Daimler racked up 3.8 billion euros in losses over the previous three quarters as the recession plunged the car industry into its worst crisis since World War II. The company, the world's largest truckmaker and the second-largest luxury-car manufacturer, delayed a pay increase, scaled back hours and started closing truck plants in Asia and North America. Maintaining savings achieved this year is “a core element to keep investor confidence” for Daimler, Arndt Ellinghorst, a Credit Suisse automotive analyst in London, said in a Bloomberg Television interview. “We expect an improvement in the premium car business, alongside improving demand from corporate customers.”
Daimler fell as much as 1.01 euros, or 2.8 percent, to 34.82 euros and was down 0.9 percent as of 2:01 p.m. in Frankfurt trading. That pared the stock's gain this year to 33 percent. “We are now very well positioned and can look with confidence to the coming year, which will remain challenging due to the still-difficult situation of automobile markets worldwide,” Chief Executive Officer Dieter Zetsche said in the statement. Dealers and suppliers could be burdened by the tough economy and cause a “negative impact” on Daimler's Ebit in the fourth quarter, the company said. It didn't specify a target earnings figure for the period.
“Mercedes-Benz has been successfully chasing volume with heavily subsidized finance deals, even on its best-selling models,” said Simon Empson, managing director of U.K. discount- car site Broadspeed.com. The lease agreements, which have low interest rates and assume high values for the cars after trade- in, are “surely storing trouble for the medium term.”
Sales in the three months through September fell 19 percent to 19.3 billion euros, Daimler said on Oct. 19. Earnings before interest and taxes dropped 27 percent to 470 million euros. The Mercedes-Benz Cars division, which also owns the Smart mini-car brand, more than tripled Ebit in the quarter to 355 million euros from 112 million euros a year earlier. Daimler predicted that Mercedes-Benz will report higher sales and earnings in fourth quarter compared with the third.
The Daimler Trucks unit, which also makes Freightliner vehicles in the U.S. and Fuso models in Asia, had a loss of 127 million euros compared with profit of 510 million euros a year earlier. The division, which is eliminating 5,800 jobs and closing two factories in North America and two in Asia, was Daimler's only unprofitable business last quarter.
Expenses related to the reorganization are likely to lead to a wider loss at Daimler Trucks in the fourth quarter, the company said today. Contractions in the U.S. and European car and commercial- vehicle markets since late 2008 prompted Daimler to slash output to save money and clear a glut of unsold vehicles. Mercedes-Benz Cars cut production by 30 percent in the first nine months of 2009, outpacing a 20 percent drop in vehicle sales in the period. Truck production was reduced 55 percent as sales fell 47 percent.
The cutbacks peaked in April, when Daimler reduced the hours of as many as 68,000 employees in Germany by more than 10 percent. At the end of the third quarter, the number of employees on shortened workweeks had been lowered to 27,400, the company said on Oct. 19.
Daimler announced plans on Oct. 22 to invest 3 billion euros in factories in Germany by the end of next year to add car models and improve product quality and plant efficiency. The company is also building a new small-car factory in Hungary that will open in 2012. The plant is part of a 1.4 billion-euro expansion of the Mercedes-Benz brand's compact-vehicle offering, which will also include two new models.
Mercedes-Benz, which trails Bayerische Motoren Werke AG as the world's top maker of luxury cars, is seeking to keep pace with its Munich-based competitor as well as fend off threats from Volkswagen AG's Audi and Toyota Motor Corp.'s Lexus. The division, which has been in talks with BMW about joint purchases of components, is considering a partnership with other auto companies in the small-car segment, Daimler said last week.
“They've clearly cut costs and still have an iconic brand,” said Stephen Pope, chief global strategist for Cantor Fitzgerald in London. “They are going to be one of the longer term survivors. But at the current time, they're a bit off the pace of where BMW is.”
Chief Financial Officer Bodo Uebber is scheduled to discuss earnings on a conference call at 2 p.m. in Germany.
