Daimler Shows Year-Long Strength - Analyst Blog

By Zacks | February 13, 2013 AAA

Daimler AG (DDAIF) reported a 30% rise in earnings per share to ¬2.09 ($2.70) in the fourth quarter of 2012 from ¬1.61 in the same quarter of 2011 while net earnings rose 32% to ¬2.36 billion ($3.04 billion) from ¬1.79 billion a year ago.

Revenues inched up 3% to ¬29.83 billion ($38.48 billion), driven by higher sales of Mercedes-Benz cars segment and higher revenues generated from Daimler Financial Services. Unit sales were almost flat at 597,041 during the quarter. Earnings before interest and taxes (EBIT) scaled up 7% to ¬2.32 billion ($2.99 billion).

For full year 2012, net earnings increased 8% to ¬6.50 billion ($8.38 billion) or 7% to ¬5.71 ($7.37) per share. Revenues went up 7% to ¬114.30 billion ($147.4 billion), mainly driven by higher sales in Mercedes-Benz cars and Daimler Trucks segments as well as higher revenues generated from Daimler Financial Services.

However, EBIT slid 2% to ¬8.62 billion ($11.11 bullion) during the year. The decline was attributable to a shift in the regional structure of unit sales, unfavorable model mix and higher expenses in connection with the expansion of Mercedes-Benz Cars' product portfolio.

Segment Detail

Revenues from Mercedes-Benz Cars segment went up 7% to ¬16.12 billion ($20.79 billion) in the quarter on a 6% rise in unit sales and 7% to ¬61.66 billion (79.54 billion) in the year on a 5% rise in unit sales. Revenues were positively affected by strong sales of compact cars and sports utility vehicles (SUVs) and positive developments in the U.S.

However, the segment EBIT declined 31% to ¬848 million ($1.09 billion) in the quarter and 15% to ¬4.39 billion ($5.66 billion) in the year due to expenses related to enhancement of the products' attractiveness, capacity expansion and as well as for new technologies and vehicles.

Revenues from Daimler Trucks dipped 6% to ¬7.78 billion ($10.04 billion) in the quarter on a 13% fall in unit sales but rose 9% to ¬31.39 billion ($40.49 billion) in the year on a 9% rise in unit sales. The increase in the year was attributable to strong growth in the NAFTA region and Asia.

EBIT shrank in both the quarter and year by 29% to ¬300 million ($387 million) and 9% to ¬1.71 billion ($2.21 billion), respectively due to current product offensive and sluggish demand in Brazil and Western Europe as well as expenses from the compounding of non-current provisions.

Revenues from Mercedes-Benz Vans segment tumbled 9% to ¬2.48 billion ($3.20 billion) in the quarter on a 3% fall in unit sales and 1% to ¬9.07 billion ($11.70 billion) in the year on a 4% drop in unit sales. The decrease was attributable to difficult market conditions in Western Europe.

EBIT plunged 61% to ¬101 million ($130.29 million) in the quarter and 35% to ¬541 million ($697.89 million) in the year owing to lower unit sales, and expenses related to the impairment of the Chinese joint venture Fujian Benz Automotive Corporation and launch of the Citan city van and the new Sprinter in Argentina.

Revenues from Daimler Buses fell 11% in both the quarter and year to ¬1.23 billion ($1.59 billion) and ¬3.93 billion ($5.07 billion), respectively. Unit sales dipped 14% in the quarter and 19% in the year. The segment had a loss of ¬27 million ($34.83 million) in the quarter and ¬232 million ($299.28 million) in the year compared with a profit of ¬109 million in the corresponding quarter of 2011 and ¬162 million in 2011.

The decline in EBIT was attributable to lower unit sales due to weaknesses in Latin America and unfavorable model mix in the European market. In addition, expenses of ¬155 million ($199.95 million) for the repositioning of the European and North American business systems and exchange-rate changes had unfavorable effects on EBIT.

Revenues from Daimler Financial Services grew 16% to ¬3.63 billion ($4.68 billion) in the quarter while it improved 12% to ¬13.55 billion ($17.48 billion) in the year as new business rose 14% to the new record of ¬38.10 billion ($49.15 billion)and contract volume increased by 12% to ¬80.0 billion ($103.2 billion) in the year.

However, EBIT fell 8% to ¬288 million ($371.52 million) in the quarter and 2% to ¬1.29 billion ($1.66 billion) in the year. The fall was attributable to lower interest margins and a normalization of risk costs and additional expenses related to the portfolio expansion, partially offset by a larger contract volume and exchange-rate effects.

Way Forward

In Mercedes Benz Cars segment, Daimler continues to implement its "Mercedes-Benz 2020" offensive strategy. Daimler expects modified models and new models to boost unit sales in 2013 and 2014. New lineups in the first half of 2013 are as follows: The CLA four-door coupe - based on the new compact-car architecture - and new E-Class sedan and wagon in Apr; the new E-Class coupes and convertibles in mid-May; and the emission-free super sports car SLS AMG Coupe Electric Drive in June.

In the second half of the year, Mercedes-Benz sees significant growth in the luxury segment, mainly due to the launch of the all-new S-Class.

In Daimler Trucks segment, the company anticipates a meager increase in unit sales in the 2013 and further increase in 2014. Some of the models that will boost sales include Actros, Antos, Arocs, new Atego, Freightliner Cascadia Evolution, Fuso, BharatBenz and Fuso Canter and its hybrid version.

In Mercedes-Benz Vans segment, the company plans to boost unit sales in 2013 and 2014. The new Mercedes-Benz Citan is expected to contribute to this growth. In Daimler Buses, the company expects to maintain its globally leading position in its core markets for buses above 8 tons with innovative and high-quality new products.

With its "DFS 2020" strategy, Daimler Financial Services segment aims to achieve profitable growth in the years ahead. The business growth will mainly be driven by expansion in Asia, the product offensives of the Daimler Group, and the further development of innovative mobility service packages.

Daimler expects group revenue to grow in 2013 and 2014. However, 2013-group EBIT from the ongoing business is expected to reach the magnitude of the prior year. In Mercedes-Benz Cars segment, full-year EBIT is expected to be slightly lower than in 2012, while the other automotive divisions are expected to record higher earnings compared with the prior year.

In 2013 and 2014, Daimler plans to spend ¬10.8 billion on research and development activities and nearly ¬10.2 billion on property, plant and equipment.

Our Take

Daimler is a leading auto and truck producer headquartered in Stuttgart, Germany. The company develops, manufactures, distributes and sells passenger cars, light trucks and commercial vehicles. It also provides financial and other services relating to its automotive business. It currently retains a Zacks Rank #4 (Sell).

While we intend to avoid Daimler, other stocks that are worth to look for include Oshkosh Corporation (OSK) and Commercial Vehicle Group Inc. (CVGI) with Zacks Rank #1 (Strong Buy) and Volkswagen AG (VLKAY) with Zacks Rank #2 (Buy).

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