Germany's Daimler reported a 12 percent gain in underlying second-quarter operating profit, propelled by Mercedes as its new C-Class and E-Class models helped the luxury auto maker lift margins. The Stuttgart-based maker of trucks and cars said group earnings before interest and tax (EBIT) from ongoing business rose to 2.46 billion euros ($3.3 billion) from 2.19 billion in the three months ended June, beating a 2.38 billion average forecast in a Reuters poll.
Profitability at Mercedes-Benz Cars, Daimler Buses and Daimler Trucks all rose, the company said, adding that it was still looking for ways to cut costs amid turmoil in emerging markets and flat sales in Germany. "We are continually looking at ways to improve our structural efficiency," Chief Executive Dieter Zetsche told journalists during a conference call, while declining to put a figure on the extent of potential savings.
Currency volatility, mainly related to emerging markets including Brazil, sliced 260 million euros from Daimler's earnings during the quarter. The EBIT of Mercedes-Benz Cars jumped 35 percent, and its return on sales - closely watched as a measure of performance compared with rivals Audi and BMW - rose to 7.9 percent from 6.4 percent in the year-earlier quarter, though still below the 10 percent goal it had set itself. Rivals BMW and Audi, which have yet to release second-quarter results, posted higher return on sales of 9.5 percent and 10.1 percent, respectively, in the first quarter.
Mercedes-Benz was able to raise margins despite a 1 percent fall in production volumes as the old model C-Class sedan was gradually phased out. Sales are expected to receive a further boost in the second half of 2014, when the next generation Mercedes-Benz C-Class, the company's best selling model which is already on sale in Europe, hits showrooms in China and North America in September.
Between January and June, global deliveries of Mercedes-Benz luxury cars rose 12.8 percent to 783,520, the highest first-half sales ever, putting it on track to post record full-year sales. "If all markets perform well and the product is good, Daimler can reach the 10 percent even without a new savings programme," Arndt Ellinghorst, a London-based analyst at investment researchers ISI Group said. "Whether the margin would be sustainable is a different matter."
Ellinghorst has a "buy" rating on Daimler shares. The improved profit margins are down to Mercedes-Benz's ability to raise prices with the introduction of new models such as a facelifted E-Class and the new S-Class in China as well as compact cars, Daimler said. The company relaunched its A-Class compact late in 2012, unveiled a new S-Class flagship limousine in July 2013 and launched a new C-Class in Europe in March. Demand for Mercedes-Benz vehicles remains robust even in Russia, where the company posted a 20 percent rise in sales in the first half, Zetsche said.
Daimler affirmed a forecast for a significant rise in 2014 group EBIT from ongoing operations compared with 2013 and said it expected results in the second half of the year to exceed those of the first. Shares in Daimler rose 1 percent to 66.77 euros in early trading, while the German bluechip DAX index was 0.4 percent higher. On a reported basis, second-quarter group EBIT slumped 41 percent to 3.1 billion euros as a year-earlier, one-off gain of 3.2 billion euros from the sale of shares in EADS - now Airbus - was not repeated.
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