Recovering automotive markets around the world, strong growth in major car and commercial-vehicle markets, an attractive product portfolio and the implementation of efficiency improvements had a very positive effect on Daimler AG (stock-exchange symbol DAI) in the second quarter of 2010. As already announced on July 16, Group EBIT amounted to €2,104 million (Q2 2009: minus €1,005 million).
“Our strategy is paying off: We have a very dynamic development of unit sales and revenue in all divisions. After what was already a very good first quarter, we achieved excellent results in the second quarter,” stated Dr. Dieter Zetsche, Chairman of the Board of Management of Daimler AG and Head of Mercedes-Benz Cars. Mercedes-Benz Cars and Daimler Trucks in particular posted significant improvements in their operating profit.
Zetsche remains confident for the full year: “We anticipate significant revenue growth in 2010 and we are targeting EBIT from the ongoing business of €6 billion.”
The positive development of EBIT in the second quarter led to a significant improvement in net profit to €1,312 million (Q2 2009: net loss of €1,062 million). Earnings per share amounted to €1.18 (Q2 2009: loss per share of €0.99).
Unit sales up by 27% in the second quarter
In the second quarter of 2010, Daimler sold 496,500 cars and commercial vehicles worldwide, surpassing the prior-year volume by 27%.
The Daimler Group’s second-quarter revenue increased significantly from €19.6 billion in 2009 to €25.1 billion this year (+28%); adjusted for exchange-rate effects, revenue grew by 21%.
The free cash flow of the industrial business was positive and increased substantially by €1.1 billion to €2.5 billion.
At the end of the second quarter of 2010, Daimler employed 257,658 people worldwide (June 30, 2009: 257,427). Of that total, 163,507 were employed in Germany (June 30, 2009: 162,818). Due to the current order situation and the revival of demand around the world, short-time work was terminated as of June 30, 2010, with just a few small exceptions.
Details of the divisions in the second quarter
The Mercedes-Benz Cars division increased its unit sales by 19% to 342,500 vehicles. For the Mercedes-Benz brand, this was the strongest second quarter ever; its unit sales rose by 24% to 314,400 vehicles. For lifecycle reasons, sales of the smart fortwo decreased to 27,100 units (Q2 2009: 33,500). Mercedes-Benz Cars’ revenue increased by 33% to €14.0 billion. EBIT rose by €1.7 billion to €1,376 million. The division’s return on sales was 9.8% (Q2 2009: minus 3.2%).
The very positive earnings trend was primarily the result of increased vehicle shipments, especially in China, as well as an improved product mix. The substantial improvement in profitability was also caused by better pricing, efficiency enhancements and slightly positive exchange-rate effects.
Daimler Trucks increased its unit sales by 55% to 83,800 vehicles. All of the division’s major markets contributed to this positive development, in particular Indonesia (+130%), the United States (+44%), Brazil (+50%) and Europe (+39%). Revenue of €5.9 billion was also well above the prior-year level (Q2 2009: €4.2 billion). The division also achieved a significant improvement in its operating performance, with EBIT of €300 million (Q2 2009: minus €508 million) and a return on sales of 5.1% (Q2 2009: minus 12.0%).
The key factor for the earnings trend was the good development of unit sales. There were other positive effects from the measures taken to reduce costs, in particular from the repositioning of the subsidiaries Daimler Trucks North America and Mitsubishi Fuso Truck and Bus Corporation. The ongoing implementation of those programs reduced second-quarter EBIT by €14 million (Q2 2009: €217 million).
Unit sales by Mercedes-Benz Vans increased by 42% to 59,400 vehicles. Second-quarter revenue of €2.0 billion was also well above last year’s level (Q2 2009: €1.5 billion). EBIT amounted to €127 million (Q2 2009: minus €10 million) and the return on sales improved to 6.4% (Q2 2009: minus 0.7%). The division’s earnings improvement was primarily the result of a strong increase in unit sales compared to the second quarter of last year. Negative exchange-rate effects were more than offset by sustained efficiency gains.
Daimler Buses sold a total of 10,800 buses and chassis worldwide (Q2 2009: 8,300). Revenue of €1.2 billion was higher than in the prior-year quarter (€1.1 billion). EBIT also increased, to €79 million compared to €49 million in the second quarter of last year. The return on sales was 6.6% (Q2 2009: 4.4%). The main factors behind this earnings development were positive exchange-rate effects and higher revenue resulting from increased chassis shipments in Latin America.
The contract volume of Daimler Financial Services increased to €63.8 billion at the end of the second quarter, which is 9% higher than at the end of 2009. Adjusted for exchange-rate effects, the division’s portfolio remained stable. New business amounted to €7.9 billion (Q2 2009: €6.5 billion). EBIT improved substantially to €171 million (Q2 2009: €79 million).
The earnings increase was mainly caused by lower risk expenses and higher interest margins. In addition, gains were realized in connection with the sale of non-automotive assets (€26 million). Expenses of €78 million were incurred for the repositioning of business activities in Germany.
The reconciliation of the divisions’ EBIT to Group EBIT reflects Daimler’s proportionate share in the results of its equity-method investment in EADS, other gains or losses at the corporate level, and the effects on earnings of eliminating internal transactions between the divisions.
Based on the divisions’ estimations, Daimler expects total unit sales to increase significantly in 2010 (2009: 1.6 million vehicles).
The Daimler Group assumes that it will achieve significant revenue growth in 2010 (Q2 2009: €78.9 billion).
In view of the good business development in all divisions and supported by the favorable development of important exchange rates, the Daimler Group has once again increased its earnings forecast. For 2010, EBIT from the ongoing business of €6 billion is targeted.
This expectation is based on the continuation of a stable economic development and the ongoing market success of the Group’s products. The biggest risks are seen to be in the high volatility of the financial markets, as well as in a worsening of the macroeconomic environment.
The divisions’ new expectations for EBIT from the ongoing business in 2010 are as follows:
* Mercedes-Benz Cars targets EBIT of €4 billion.
* Daimler Trucks anticipates EBIT of around €1 billion.
* Mercedes-Benz Vans assumes it will achieve EBIT in the magnitude of €350 million.
* Daimler Buses expects to post EBIT of €180 million.
* Daimler Financial Services anticipates EBIT of approximately €800 million.
Mercedes-Benz Cars will profit this year from the full availability of the new E-Class models. Unit sales will be additionally boosted by the new super sports car Mercedes-Benz SLS AMG, and as of autumn 2010 by the new generations of the R-Class and the CL-Class. Starting in the third quarter of 2010, cars will gradually be equipped with new and particularly efficient six- and eight-cylinder gasoline engines.
For the smart brand, an increase in demand is anticipated as of the third quarter of 2010 following the launch of the new generation of the smart fortwo. On the basis of an attractive and competitive range of vehicles, the division assumes that unit sales of the Mercedes-Benz brand will increase at a double-digit rate in 2010.
For the second half of the year 2010, the Mercedes-Benz Cars division expects the positive trend of the first two quarters to continue, but no longer with the same dynamism. Although a continuation of stable global sales markets and an improving economic environment is anticipated, there are still risks of a growth slowdown in some regions. An additional factor is that personnel expenses will increase in the second half of the year due to the termination of reduced working hours as of May 31, and the exchange rates of currencies important to Daimler are highly volatile. There will be opposing, positive effects, however, from the consistent implementation of the efficiency program and an optimized product range.
Daimler Trucks expects a significant recovery of unit sales in 2010 due to the stabilizing market situation in many major markets and the availability of new models. Indonesia, the United States, Brazil and Europe will probably remain the main drivers. In addition, market recovery is also anticipated in Japan and Turkey.
The division also expects sales impetus from the face-lifted Mercedes-Benz trucks Atego and Axor, which can be ordered as of the IAA Commercial Vehicles Show with deliveries starting towards the end of this year.
The Detroit Diesel engines supplied in the United States from the new generation of heavy-duty engines with BLUETEC technology and complying with EPA10 emission regulations will lead to increasing demand for Freightliner trucks. Customer demand should also be stimulated by the new Fuso heavy-duty truck with BLUETEC engines from the new Daimler Trucks heavy-duty engine generation and by the new medium-duty Fuso Fighter.
Against the backdrop of rising demand and the market recovery in the vans business, Mercedes-Benz Vans anticipates a significant increase in unit sales compared to 2009.
Daimler Buses anticipates growth in unit sales for 2010, primarily due to the development of chassis sales in Latin American markets. In Western Europe, however, unit sales will remain below the prior-year level for market reasons.
Daimler Financial Services anticipates a reduction in worldwide credit-risk costs and further efficiency improvements in full-year 2010. Adjusted for exchange-rate effects, contract volume is expected to develop along a stable path in the second half of this year.
As a result of the upturn in demand, the Daimler Group expects the size of its worldwide workforce to remain constant or to increase slightly compared to the end of 2009.
Source: Daimler AG