Daimler reported strong second quarter results this week and the outlook looks very good for the group, writes Sabine Blümel. The group sold 596,400 vehicles, ranging from the two-seater smart to heavy trucks and buses, 6.1% more than a year ago. Group EBIT (earnings before interest and tax) increased 13.1% year-on-year to EUR 2.46bn and 7.8% margin.
As expected Mercedes-Benz Cars, the group’s passenger car division, was the main earnings driver. In the second quarter, Mercedes-Benz sold 432,600 cars, 9.3% more than a year ago and generated a 30% year-on-year increase in EBIT to EUR 1.41bn and a 7.9% margin, up from a 7.0% margin in the first quarter.
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The main drivers behind the earnings improvement were, besides higher sales, an accelerating model momentum and also a richer mix. New models tend to achieve considerable better pricing and a higher option uptake than those that are approaching the end of their life-cycle. The earnings impact of this pricing effect is even greater when the top end of the portfolio happen to be replaced.
Mercedes-Benz is currently in a sweet spot, benefiting from an all-new S-Class and the facelifted E-Class that have both been rolled out since spring 2013. Although with so far only the saloon version available, sales of the S-Class, the division’s flagship model and most profitable model per car sold, jumped 60% yoy to 89,100 units in 2Q14. The E-class family, the division’s most important profit contributor saw a 20% year-on-year increase in sales to 91,000 units in 2Q14.
Sales of Mercedes compact cars grew 21% yoy to 116,400 units. This was supported by the new GLA, a compact cross-over launched in March and the fourth model on the front-wheel architecture (MFA). Mercedes has now, at long last entered the fast growing sub-segment of premium compact CUVs, more than four years after BMW had launched its X1 and almost three years after Audi its Q3. The portfolio of compact cars, that so far include also the A-Class, the B-Class and sporty CLA, has helped M-B to make a profitable foray into a fast growing segment, where it is enjoying an extremely high conquest rate. Besides growing the business, the compact portfolio is also essential in the OEM’s pressing need to rejuvenate its customer base that is considerably older than that of its peers.
Looking at the various markets, the most important increases in terms of profitability were China (where sales were up 28% yoy at 73,500 units), non-German Western Europe (with a 12% yoy increase to 106,000) and North America (with an 8% yoy increase to 93,300 units). It is also worth pointing out that sales in most emerging markets continued to grow, despite hefty price increases and collapsing volume segments.
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By GlobalDataHeadwinds in 2Q14 included a strong euro and higher additional costs for developing new products, future technology and expanding and updating production capacity, resulting in a combined negative impact of EUR 750m compared to a year ago. Like most in the automotive industry, management is continuously striving to cut the cost-structure and improve efficiency, resulting in efficiency gains worth some EUR 200m.
Management are optimistic for the full-year 2014 and expect that the EBIT in the second half will be greater than the EUR 2.59bn/7.5% generated in the first half. This is despite the fact, that headwinds from currency should again amount to EUR 300m, the same as in the first half.
However, the earnings momentum is expect to continue to accelerate, driven by a further speeding up of the model momentum and higher efficiency gains. The most important new models that should have a positive impact in 2H14 are the new C-Class saloon that so far has only been introduced in Europe, and the S-Class coupé. In September, both are due to be rolled out in the US and China.
The new C-Class is designed to play a key role in M-B’s strive to increase profitability and move closer towards its medium-term profitability target of 10%. The C-Class is the first model on the new modular rear-wheel drive platform (MRA) that eventually will support also the future/new E-Class, due out in 2015 and the next generation S-Class. With the new modular platform, management aim to reduce costs for the forthcoming products compared to previous generations, a necessary step to contain the rising and daunting costs needed to comply with ever tighter emission regulations.
See also: GERMANY: Daimler boosts Q2 EBIT 12%
