Daimler rises as profit surprises & Mercedes sales lead

Bloomberg

Daimler AG rose the most in three weeks after the company solidified its lead in the luxury-car market and said it’s confident of reaching this year’s underlying profit goals, despite more than 1 billion euros ($1.1 billion) in one-time costs in the second quarter.
Adjusted earnings before interest and taxes rose 5.6 percent to 3.97 billion euros in a preliminary tally, “significantly” beating analyst expectations, the automaker said in a statement. Daimler benefited from gains in vans and buses while earnings dropped at the trucks and the Mercedes Cars division. The result excludes almost 500 million euros in Takata Corp. air-bag recalls as well as 400 million euros for legal costs that Daimler didn’t explain.
The charges are outweighed by the carmaker sticking to its forecast, which now looks more achievable, analysts at Goldman Sachs wrote in a note to investors Tuesday. Locked in a race for luxury-market leader with BMW AG and Audi, Mercedes has been in the process of rejuvenating its fleet, including a new version of the business-focused E-Class sedan in March. The carmaker was ahead of both rivals in sales through June.
Daimler rose 4.5 percent, the most since June 20, to 57.71 euros at 10:28 a.m. in Frankfurt. The stock has lost 26 percent this year, compared to a 7 percent drop in the benchmark DAX Index.
“The stronger than expected result was driven by the strong performance in the cars division,” said Arndt Ellinghorst, a London-based analyst with Evercore ISI who has a sell rating on the shares. “Just when Brexit has increased macro risks and Daimler has just recently warned on its trucks outlook, Daimler delivers a material beat.”

Legal Challenges
Daimler’s legal challenges include a lawsuit in the U.S. claiming that its BlueTec diesel vehicles violate clean-air standards when run at cooler temperatures. The carmaker declined to comment on whether the legal costs are linked to that suit, which it has called “baseless.” Germany’s antitrust regulator also raided Daimler’s offices last month in a probe of steel purchasing by the auto industry.
The company stuck to its forecast for full-year earnings, saying they will improve slightly from 2015. Among the divisions, the heavy-truck unit is still expected to see Ebit sink significantly below last year’s level, while that of the vans division is seen significantly above.
Adjusted Ebit at the Mercedes-Benz Cars unit fell 1.1 percent to 2.21 billion euros in the second quarter. Mercedes adjusted the value of its inventory by 284 million euros in the period.
The marque’s sales jumped 12 percent this year through June to just over 1 million cars, more than double growth at Volkswagen AG’s Audi, where deliveries rose 5.6 percent. BMW-brand sales increased 5.8 percent to 986,557 vehicles.
Mercedes-Benz solidified its sales lead over the BMW brand in the first half of the year, moving closer to a goal of unseating its rival for the first time since 2005. BMW’s six-month deliveries rose 5.8% from a year earlier to 986,557 autos, compared with a 12 percent gain to just over 1 million cars for Daimler AG’s Mercedes. That left Munich-based BMW trailing its Stuttgart-based rival by 20,062 vehicles.
Mercedes is set to deliver four years early on a target of beating BMW’s annual sales. Volkswagen AG’s Audi division, which reported a 5.6 percent first-half delivery increase to 953,200 cars, has also said it wants to become No. 1 in the luxury-auto industry. All three have stressed that growth mustn’t come at the expense of profitability. Daimler published second-quarter earnings late Monday in an unscheduled release, saying adjusted operating profit beat analysts’
expectations.
During June, BMW delivered 189,097 cars, a gain of 9.7 percent, as demand rose for 2-Series sedans and the company’s SUV lineup, the Munich-based manufacturer said Tuesday in a statement. That compares with Mercedes’s 11 percent jump to 188,444 autos that was also propelled by a surge in SUV demand. Audi remained in third place with 169,000 deliveries, a gain of 7.4 %.
Carmakers are under pressure to invest in new products and technologies such as electric cars to keep pace with emissions regulations as well as changing consumer expectations that focus more on connected services than actual driving. BMW AG said it received 5,000 orders for its revamped electric i3 city car with an improved driving range before the model became available this month.