China Powers Daimler Profit -- WSJ
22 October 2016 - 08:03AM
Dow Jones News
By William Boston
BERLIN -- Daimler AG reported sharply higher profit in the three
months to the end of September, beating expectations as strong
sales of its new E-class luxury model in China and sport-utility
vehicles drove earnings at its flagship Mercedes-Benz cars.
Mercedes-Benz, the company's biggest division, saw continued
strong demand for its luxury sedans in China, pushing sales higher
and keeping Daimler on track to overtake rival BMW AG as the
world's biggest premium car maker.
Net profit in the third quarter rose to EUR2.60 billion ($2.83
billion) from EUR2.39 billion the year before, while earnings
before interest and taxes after special items, or EBIT, rose 10% to
EUR4 billion. Revenue rose 4% to EUR38.6 billion as unit sales of
its passenger cars jumped 11% to 565,564 in the three months to
end-September.
Analysts cheered Daimler's solid results in the quarter, but
shares fell nearly 2% to EUR64.76 in early trading as investors
took profit in the absence of significant news and growing risks to
future earnings.
"Daimler's turnaround of the Mercedes brand has been exceptional
but we feel that this is well understood and leaves little room for
positive surprises or indeed unrecognized earnings momentum," said
Arndt Ellinghorst, analyst at Evercore ISI, a London-based
brokerage.
Some of the risks include the potential impact on Daimler's
European business from Brexit, the decision by U.K. voters to leave
the European Union.
Bodo Uebber, Daimler's finance chief, said Mercedes sales in the
U.K. were still strong, but a slight decline in September showed
that the Brexit was "gradually becoming noticeable."
Mr. Uebber said Daimler is struggling with volatile currency
markets. Through its hedging policies, Daimler is shielded against
the post-Brexit decline of the British pound, but would face
substantial currency losses in some emerging markets. Overall, he
said, Daimler would post a slight gain on foreign exchange this
year.
Daimler also faces rising capital expenditure as it invests
heavily in a new technology and businesses to prepare for sweeping
changes in the automotive industry.
At the Paris car show last month, Daimler unveiled plans for a
subbrand of electric vehicles called EQ, and it is investing in new
technology for self-driving cars and new digital services such as
its MyTaxi cab-hailing app and Car2Go ride-sharing service to
compete with new technology rivals such as Uber Technologies
Inc.
Daimler Trucks, the company's second-largest business by
revenue, is coming off record 2015 profit as sales and demand
decline sharply in its core markets, dimming the outlook for 2017.
The division issued a profit warning in May and has warned of job
cuts.
Daimler Trucks revenue slipped 19% to EUR7.8 billion in the
third quarter as unit sales slumped 24%, hit by economic turmoil in
emerging markets, a slowdown in the U.S., and tougher market
conditions for commercial vehicles in Europe.
Daimler confirmed its profit outlook for the full year, but
slightly lowered its revenue forecast to about the same level as
last year. The company anticipated growth in Western Europe and
Asia, but expected declining revenue in North America as the U.S.
market slows down.
"Daimler remains on track to achieve our earnings forecasts for
the full year, despite volatile sales and finance markets," said
Mr. Uebber told reporters.
The company expects EBIT to "increase slightly" in 2016, despite
sharply lower earnings in the struggling truck division.
Revenue at Mercedes-Benz Cars rose 12% to EUR23.3 billion in the
third quarter, and EBIT rose 23% to EUR2.7 billion, driven higher
by "growing unit sales in the SUV segment and the market success of
the E-class," the company said.
Write to William Boston at william.boston@wsj.com
(END) Dow Jones Newswires
October 22, 2016 02:48 ET (06:48 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.