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Daimler's Profit Drops 21% Despite Strong Mercedes-Benz Demand

By John Rosevear - Oct 25, 2018 at 5:06PM

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Model changeovers and regulatory snags kept supplies tight last quarter.

Daimler AG (DMLR.Y 0.06%) CEO Dieter Zetsche is confident that demand for Mercedes-Benz vehicles remains strong, despite a 13% drop in sales in the company's home market of Germany that dented third-quarter results.

Daimler's third-quarter earnings before interest and tax (EBIT) fell to 2.49 billion euros ($2.85 billion at this writing) from 3.46 billion euros a year ago, after EBIT at the company's Mercedes-Benz Cars unit fell 35% from the third quarter of 2017.

Daimler earnings: The raw numbers

All financial figures are reported in euros. As of Oct. 25, 1 euro = about $1.14.

Metric Q3 2018 Change vs. Q3 2017
Revenue 40.2 billion euros (1%)
Vehicles sold 794,749 (1%)
Earnings before interest and tax (EBIT) 2.49 billion euros (27%)
EBIT margin 6.2% (2.2 ppts)
Net profit 1.76 billion euros (21%)
Earnings per share 1.58 euros (21%)

Data source: Daimler AG. "Ppts" = percentage points.

What happened with Daimler this quarter?

  • Daimler's Mercedes-Benz Cars division -- which makes and sells Mercedes-Benz brand cars and SUVs, as well as the small Smart-brand cars -- generated EBIT of 1.37 billion euros, down 35% from a year ago, on a 6% decline in revenue. Sales fell 6% on the decline in Germany and regulatory issues in the United States that temporarily limited supply, offset somewhat by an 11% increase in sales in China.
  • Daimler Trucks, the company's heavy-trucks unit, saw EBIT rise 38% to 850 million euros on a 9% increase in sales, driven largely by strong demand in North America.
  • Mercedes-Benz Vans, the company's commercial-vehicle unit, posted an EBIT loss of 93 million euros, a significant swing from a profit of 214 million euros a year prior. Sales and revenue fell just 2% from a year ago; much of the EBIT decline was due to increased spending on future technologies and costs related to the launch of the new Sprinter vans.
  • Daimler Buses' EBIT declined 6% from a year ago, to 30 million euros, despite a 3% increase in global sales. Daimler attributed the decline to unfavorable product mix, and cost increases related to inflation in certain markets.
  • Daimler Financial Services generated EBIT of 392 million euros, a 23% decline from a year ago. New business fell by 5%, and higher interest rates also weighed on results.
A black Mercedes-Benz S-Class sedan on a cobblestone street

Demand remains strong for the big Mercedes-Benz S-Class sedan. Through September, global sales are up 24% this year. Image source: Daimler AG.

What management had to say

CFO Bodo Uebber expanded on Zetsche's remarks, saying that Mercedes' sales drop in the third quarter was due to supply issues, not a decline in demand:

With almost 560,000 units sold, Mercedes-Benz Cars was 6% below last year's level. The reasons for the sales decrease include model changes, restricted vehicle availability in Europe and some international markets, and very intense competition. And to emphasize it again, the sales performance is a result of limited product availability and not due to low demand.

Looking ahead: Daimler's guidance

Daimler issued a statement last Friday warning that its third-quarter EBIT would be down sharply. It also lowered its full-year guidance for the Mercedes-Benz Cars, Daimler Buses, and Daimler Financial Services units, and for its overall earnings. It reiterated that lower guidance in its earnings report on Thursday:

  • Daimler now expects its 2018 earnings before interest and tax (EBIT, or operating profit) at its Mercedes-Benz Cars unit (the luxury-vehicle brand) to be "significantly below" the 9.2 billion euros it earned in 2017.
  • Full-year EBIT at Mercedes-Benz Vans, its Mercedes-brand commercial-vehicle unit, will be significantly lower than its 2017 result of 1.18 billion euros.
  • Full-year EBIT at Daimler Buses, which makes commercial and school buses under several brands, will be "significantly below" its 2017 result of 243 million euros.
  • Full-year EBIT at Daimler Trucks, which makes medium and heavy trucks under several brands, will be "significantly above" its 2017 result of 2.38 billion euros.
  • Full-year EBIT at Daimler Financial Services will be roughly equal to the 1.97 billion euros it earned in 2017. (Prior guidance: "significantly above" 2017's result.)

The upshot: Daimler currently expects its overall 2018 EBIT to be "significantly below" its 2017 result of 14.68 billion euros.

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