Chinese Demand for Mercedes Drives Parent Company Financial Results

Mark O'Dell reports in the Financial Times:

"Booming sales of Mercedes-Benz cars in China helped Daimler post strong first-quarter results, as the German car and truck maker said it expected “solid” global economic growth this year.

The Stuttgart-based company reported net profit in the three months to the end of March of €1.18bn, almost double the €612m in the same period a year earlier, helped by higher margins in its cars division – up 2.3 points to 9.3 per cent – and a strong rebound in its truck unit. Revenues rose 17 per cent to €24.7bn (€21.2bn).

Daimler sold 310,700 cars, up 12 per cent on the same quarter in 2010, driven by demand in China where unit sales jumped 82 per cent to 48,900 vehicles. The company’s two biggest markets, the US and Germany, respectively, saw unit sales rise 4 per cent.

The company, which expects to produce more than 1.2m cars in 2011, said it had seen strong demand for its high-margin E-Class executive saloons and that its luxury S-Class family continued to sell well. Earnings before interest and tax (Ebit) at Mercedes rose 60 per cent to €1.29bn.

The truck unit, the world’s biggest by sales, was lifted by a return in demand in Europe and rapid growth in emerging markets. Its margins almost tripled to 6.6 per cent against 2.7 per cent last year, as unit sales rose 27 per cent to 89,260, boosting ebit to €415m in the first quarter from €130m in the same period in 2010.

The trucks business took a €49m charge to cover damage and production losses at its Mitsubishi Fuso unit in Japan, following the quake and subsequent nuclear crisis.

Daimler said it expected to “significantly” increase group ebit in 2011 from €7.3bn in 2010, reaffirming its full-year outlook. It also said it expected to “significantly” increase unit sales from the 1.9m vehiclesit sold last year.

Dieter Zetsche, Daimler’s chairman, said the strong performance “puts us well ahead of our planning and confirms our positive outlook for 2011”.

But investors reacted negatively to the earnings, in spite of earnings slightly ahead of consensus, sending the shares down 2 per cent to €51.95 in mid-afternoon trading in Frankfurt. Earlier in the week, Volkswagen had wowed the markets with its quarterly earnings.

In spite of upbeat forecasts of “solid” global gross domestic product growth of 3.5 to 4 per cent this year, Daimler warned that some economies could slip back into recession if oil prices continued to rise. Bodo Uebber, Daimler’s chief financial officer, said wider commodity price rise could exceed the €700m earmarked for additional raw material costs this year.

Daimler and the UK aero-engine maker Rolls-Royce are jointly seeking to buy Tognum, an engine manufacturer in which Daimler holds a 28.4 per cent stake, for €3,2bn. The carmaker has pledged its holding in the tender offer, which expires on May 18.

Mr Uebber reiterated on Friday that the two bidders saw no reason to lift their €24 per share offer even though Tognum’s management has rejected the deal and its shares have hovered above the offer price.