DaimlerChrysler, which yesterday announced plans to sell a majority stake of Chrysler to private equity group Cerberus, on Tuesday announced a net profit of EUR1,972m, up from EUR781m a year ago. Earnings per share rose from EUR0.77 to EUR1.89 on group revenues down to EUR35.4bn from EUR37.4bn).
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Further losses at Chrysler were more than offset by strong earnings for Mercedes-Benz.
Earnings before interest and taxes (EBIT) of EUR7bn are expected for full-year 2007 (2006: EUR5.5bn) before the impact of the “realignment of DaimlerChrysler” (the Chrysler sale due to complete in the third quarter).
DC’s Q1 results are for the first time presented in accordance with International Financial Reporting Standards (IFRS). Operating profit, previously used to report the profitability of the group and its divisions, has now been replaced by EBIT and the measure of after-tax earnings is now “net profit” instead of “net income”.
DC said Earnings were reduced particularly by restructuring expenses related to the implementation of the Chrysler Group’s recovery and transformation plan of EUR914m). There were additional charges from the financial support provided to troubled suppliers (EUR120m) and the implementation of the new management model (EUR54m).
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By GlobalDataIncome of EUR1,563m, however, was realised in connection with DaimlerChrysler’s equity interest in EADS (the European aerospace and defence group), partially offset by expenses of EUR114m from the Power8 restructuring program at EADS.
In the prior-year quarter, the discontinuation of the smart forfour and headcount reductions at the Mercedes Car Group caused expenses of EUR1,185m. There were opposing effects from the disposed off-highway business (EUR238m) and from reductions in healthcare benefits at the Chrysler Group (EUR390m).
Improved operating results at Mercedes Car Group and the Truck Group largely offset the decline in earnings at the Chrysler Group.
Within the context of the efficiency-improving programs, measures were defined to further improve the utilisation of production facilities. As a result, depreciation of property, plant and equipment has been adjusted to the extended useful lives. In the first quarter of 2007, this led to a positive impact on Group EBIT of EUR213m.
In the first quarter of 2007, DaimlerChrysler sold 1.1m vehicles worldwide, 5% fewer than a year ago.
The Mercedes Car Group sold 271,100 vehicles in the first quarter of 2007 (Q1 2006: 281,500). Sales of 257,800 Mercedes-Benz passenger cars exceeded the high figure for the first quarter of 2006 by 1%, despite the C-class model change. As expected, unit sales by the smart brand decreased to 10,800 units due to the discontinuation of the Forfour and the model change of the Fortwo at the end of March.
The division’s revenues increased by 1% to EUR12.1bn and Mercedes Car Group achieved first-quarter EBIT of EUR792m compared with a loss of EUR735m in Q1 2006.
The prior-year result had been substantially impacted by charges relating to the discontinuation of the Forfour (EUR982m) and expenses for headcount reductions in the context of the CORE program (EUR203m). In the first three months of 2007, financial support for troubled suppliers led to charges of EUR82m.
Chrysler Group posted worldwide unit sales (factory shipments) of 642,200 vehicles in the first quarter of 2007, 8% lower than in the first quarter of the prior year. Overall retail and fleet sales fell by 2% to 673,500 vehicles. As a result of lower unit sales, revenues of EUR10.2bn were 18% lower than in Q1 2006; measured in US dollars, revenues decreased by 11%.
The Chrysler Group posted an EBIT loss of EUR1,485m in the first quarter of 2007, compared with EBIT profit of EUR641m in the prior-year.
The result for the first quarter of 2007 includes restructuring charges of EUR914m incurred in connection with the recovery plan. The result for the first quarter of 2006 included a gain of EUR390m related to changes to the healthcare programs offered to active and retired employees.
The decline in the first quarter of 2007 result also reflects a decrease in factory unit sales in the United States and an unfavorable product and market mix. However, as a result, the Chrysler Group further reduced its dealer inventories to approximately 500,500 vehicles at the end of the quarter. Additional charges resulted from negative net pricing developments and financial support provided to suppliers. These negative factors were partially offset by an increase in unit sales outside the United States.
The Truck Group sold 119,200 vehicles worldwide in the first quarter, similar to the high level of Q1 2006 (119,300); adjusted for the Sprinter vans still produced by Trucks NAFTA last year, unit sales increased by 5%. Revenues of EUR7.3bn were of the same magnitude as in the prior-year quarter.
The Truck Group reported EBIT of EUR528m in the first quarter (Q1 2006: EUR422m). The earnings increase was primarily due to efficiency improvements related to the Global Excellence program. Higher truck sales in Europe and Latin America also contributed to the positive earnings trend. On the other hand, currency effects slightly reduced earnings in the first three months of 2007.
In the NAFTA region, the Truck Group continued to profit from the high order backlog carried over from the prior year.
Unit sales by Trucks Europe/Latin America of 33,600 Mercedes-Benz brand trucks were significantly higher than in the prior-year quarter (+12%). The Trucks NAFTA unit sold 46,200 vehicles of the Freightliner, Sterling, Western Star and Thomas Built Buses brands in the first quarter (Q1 2006: 50,700).
Trucks Asia increased its unit sales to 39,600 vehicles of the Mitsubishi Fuso brand (+2%).
The Financial Services division reported stable business developments in the first quarter of this year. The division’s EBIT decreased by EUR36m compared with the prior-year quarter to EUR419m.
The reduction in earnings was partially due to currency effects, caused especially by the weaker US dollar. Another factor was that risk costs were higher than the exceptionally low level of the prior-year quarter. However, this was almost offset by an increased profit contribution of the overall portfolio, which, adjusted for currency translation effects, expanded slightly, and by efficiency improvements.
The division’s worldwide contract volume decreased by EUR5.2bn to EUR112.5bn; adjusted for exchange-rate effects, there was an increase of 3%. New business of EUR11.8bn was 14% below the high level attained in the prior-year quarter; adjusted for exchange-rate effects, the decrease was 9%.
The Van, Bus, Other segment posted first quarter EBIT of EUR1,872m (Q1 2006: EUR366m).
The earnings improvement was primarily due to gains realised in connection with the Group’s equity interest in EADS; the execution of a derivatives transaction in connection with the transfer of a 7.5% equity interest in EADS led to a gain of EUR762m. There was an additional gain of EUR754m resulting from the issue of equity interests in a subsidiary that holds the EADS shares. The valuation of a hedging transaction relating to a 3% interest in EADS led to a positive effect of EUR47m (Q1 2006: charges of EUR58m).
DaimlerChrysler’s interest in the earnings of EADS amounted to EUR165m in the first quarter; this includes expenses of EUR114m incurred in the first quarter of 2007 in connection with the Power8 restructuring program at EADS.
The result of the prior-year quarter was positively affected by EUR238m from the disposed off-highway business.
The Mercedes-Benz Vans unit achieved a new unit-sales record of 61,700 vehicles in the first quarter of 2007 (+3%). Due to strong demand for the new Sprinter, production is running at full capacity in the Düsseldorf and Ludwigsfelde plants.
DaimlerChrysler Buses sold 8,300 buses and chassis of the Mercedes-Benz, Setra and Orion brands in the first quarter, surpassing the prior-year figure by 6% and thus maintaining its worldwide market leadership.
Outlook
As the year progresses, DaimlerChrysler expects growth in global automobile markets to be lower than in the prior year (+4%), in line with overall economic developments. In full-year 2007, demand for vehicles in North America and Western Europe – DaimlerChrysler’s core markets – is likely to be slightly weaker than in 2006.
In the emerging markets of Asia, Eastern Europe and Latin America, the company anticipates an increase in demand for passenger cars and commercial vehicles. In the commercial-vehicles business, DaimlerChrysler expects a sharp decrease in demand for trucks in North America and Japan; markets should remain stable in Western Europe, however.
On the basis of the divisions’ planning, DaimlerChrysler expects overall unit sales to increase slightly in 2007 (2006: 4.7m vehicles).
The DaimlerChrysler Group’s total revenues in full-year 2007 are likely to be of the same magnitude as in 2006 (EUR152.8bn).
DaimlerChrysler expects to achieve EBIT of EUR7bn for full-year 2007 (2006: EUR5.5bn). Significant special factors affecting earnings in 2007 are the gain of EUR1.6bn realised on the transfer of interest in EADS and charges of EUR1.0bn resulting from the implementation of the recovery plan at the Chrysler Group and of EUR0.6bn from the new management model.
This earnings guidance relates to the current structure of the group, DC noted. The effects of the future concept for the Chrysler Group and the realignment of DaimlerChrysler as announced on 14 May have not yet been taken into consideration.
