A rebound at the flagship Mercedes-Benz brand helped DaimlerChrysler boost second-quarter operating profit by a forecast-beating 11 percent despite a slump at US arm Chrysler.
The world's fifth-biggest carmaker reiterated on Thursday group operating profit would exceed 6 billion euros in 2006, up from just under 5.2 billion in 2005, even though Chrysler would slide into a third-quarter loss before recovering.
Group operating profit in the second quarter rose to 1.86 billion euros ($2.37 billion) as results at the premium division Mercedes topped even the highest estimate in a Reuters poll. "Mercedes performed clearly better than expected and is well on its way," said analyst Stephan Droxner at German bank LBBW.
"The new (Mercedes-Benz) products are getting traction and they have the quality problems under control," added Ferdinand Dudenhoeffer, who heads Gelsenkirchen University's automotive studies centre.
Operating profit at Mercedes Car Group - which also includes minicar brand Smart and ultra-luxury brand Maybach - leaped to 807 million euros from just 12 million in the year-ago quarter, helped by brisk sales growth thanks to new models including the top-line and high-margin S-Class executive car. Chief Executive Dieter Zetsche said the S-Class outsells the rival BMW 7-Series and Audi A8 combined.
DaimlerChrysler said it expected earnings at the premium arm to keep improving in the quarters ahead and Mercedes remained well on track to generate a 7 percent return on sales next year. Chrysler, swept up in a US price war and battling excess inventory, saw operating profit in the quarter plunge to 51 million euros from 544 million a year ago, extending the first-quarter's earnings retreat.
It said it still expected full-year deliveries at Chrysler to hold roughly at last year's level thanks to a new model offensive in the second half. High dealer inventories will make Chrysler reduce production and shipments - mostly of SUVs and light trucks - in the third quarter, when it will also retool some plants for new models.
Launch costs for eight new models - including a new version of the Jeep Wrangler, the Dodge Nitro SUV and the Chrysler Sebring sedan - will also weigh on earnings, it said. Chrysler head Tom LaSorda said new models would allow it to reduce margin-eroding sales incentives in the fourth quarter. Chrysler foresaw a third-quarter operating loss of up to 0.5 billion euros, its first quarterly loss since 2003.
"We then expect positive earnings once again in the fourth quarter as a result of the new models to be launched in the second half of the year," it said, adding it planned on full-year 2006 profits.
Group net profit rose to 1.81 billion euros in the quarter from 737 million a year ago, on revenues that remained roughly stable at 38.6 billion euros. Analysts had on average expected net profit of 819 million on 40.20 billion in sales.
Net profit was boosted by roughly 800 million euros from revaluing derivatives contracts related to shares in aerospace group EADS. DaimlerChrysler's shares, which have lagged the European car sector index by more than 10 percent this year, trade at around 8 times 2007 earnings per share, a discount to archrival BMW's nearly 10 times, according to Reuters Estimates.
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