CEO Dieter Zetsche, pop star Aloe Blacc and the new Mercedes-Benz A-Class wagon. Daimler is counting on the new small car to help reverse recent setbacks.
Daimler AG’s earnings dropped by more than 12% in the third quarter and the company expects earnings before interest and taxes to decline for the full year as the European auto slump takes its toll on the company.
The maker is now counting on new product, especially the next-generation A-Class, to help reverse recent declines. But analysts warn a turnaround could be several quarters away.
“Considering the significantly more difficult market conditions, Daimler achieved good earnings results for the third quarter, said Dieter Zetsche, “Due to the economic challenges, Daimler will not match the high prior-year EBIT in full-year 2012, but will still post good earnings once again,” the Daimler Chairman and CEO emphasized.
Zetsche promised the company, the parent of both the Mercedes-Benz and Smart brands, was moving to reduce costs and boost efficiency in the face of the difficult conditions.
“But we are not yet at the level that we aim to reach in the medium to long term,” he acknowledged. “We have therefore initiated appropriate measures for all divisions and are thus prepared for a difficult market environment.”
At Mercedes-Benz, he said, the German maker is adding a new element to to its 2020 growth strategy: a program it has dubbed “Fit for Leadership.” It will combine existing and additional efficiency to shore up short-term targets and “to give our business system an optimal and sustainable positioning.”
There were some positive developments during the third quarter, Daimler noted, notably increases in unit sales at Mercedes-Benz Cars and Daimler Trucks, which were achieved despite more difficult conditions in some markets. Mercedes-Benz, in fact, set a new record for unit sales in the third quarter of 2012.
Mercedes-Benz Vans and Daimler Buses posted lower unit sales, however. And the Daimler Group’s overall earnings before interest and taxes, or EBIT, was reduced by higher expenses in connection with the expansion of Mercedes-Benz Cars’ product portfolio and the current product offensive at Daimler Trucks.
Daimler Financial Services did not quite reach the level of earnings achieved in the prior-year quarter due to increased cost of risk. Exchange-rate effects made a positive contribution to earnings, however.
In the third quarter of 2012, Daimler sold 528,600 cars and commercial vehicles worldwide, surpassing the prior-year total by 1%. Revenue of €28.6 billion was 8% above the prior-year level. Adjusted for changes in currency exchange rates, the increase amounted to 3%.
The free cash flow of the industrial business amounted to a loss of €200 million in the third quarter, including an increase in working capital of €800 million. This increase was partially related to growth in inventories in preparation for the market launch of the new A-Class, for which Daimler claims more than 70,000 orders have already been received.
In view of the significant worsening of the market environment in major markets in recent months and the more intense competition, Daimler has adjusted its earnings forecasts to 8 billion euro for all of 2012.
Deutsche Bank analyst Jochen Gehrke described Daimler’s third-quarter performance as “laggard,” and warned that a turnaround “should not be anticipated before the middle of” 2013.