Daimler's Q2 net profit rises 8% to EUR2.4 bil.

Daimler has posted another set of strong financial results in the second quarter headlined by an 8% year-on-year (y/y) jump in net profit to EUR2.4 billion (USD2.62 billion), according to a company press release. This figure was generated from combined group revenue which rose by 19% y/y during the period to EUR37.5 billion thanks largely to a 20% rise in Mercedes-Benz passenger car sales during the period which increased to 500,700 units. Overall group unit sales, including the truck and bus and van divisions rose by 14% y/y during the quarter to 714,800 vehicles. Group EBIT also rose by 20% y/y to EUR3.7 billion, while EBIT from ongoing business increased by the accelerated level of 54% y/y to EUR3.8 billion. The success of the passenger car business in the period in question was also confirmed by the increase in free cash flow during the first six months of the year to EUR3.4 billion, up from the figure of EUR1.4 billion in the first six months of 2014. Commenting on the result Daimler CEO Dieter Zetsche said, "We achieved the targeted margin for Mercedes-Benz Cars in the first half of the year. In all other automotive divisions, we are about to achieve our margin targets... We will systematically continue along the path we have taken, in order to fully utilize Daimler's potential. We will keep our product portfolio young and attractive with further expansion of our model range."

Division by division

Mercedes-Benz passenger cars, as referenced above, enjoyed extremely strong sales and revenue growth during the second quarter with sales up 20% and revenue rising almost correspondingly with a 19% y/y uplift to EUR21.1 billion. Sales volumes were strong in Western Europe with a 37% increase in Italy and a 28% uplift in the UK the highlights, largely thanks the C-Class and the launch of the GLA-Class last year. In the US sales rose by 10% while sales in China rose by 34% y/y which was a highly impressive result given the wider slowdown in that market. Divisional EBIT for the second quarter rose to EUR2,227 million up from EUR1,409 million, while return on sales was a strong on sales amounted to 10.5% in comparison to 7.9% the year before.

Daimler Trucks' unit sales of 125,100 vehicles closely matched the equivalent figure the year before with lower sales in South America, which fell 28%, offset by stronger sales development in NAFTA and Western Europe, with a 20% rise in the former to 49,400 units and a 15% rise in Western Europe to 15,200 units. Revenue was up by 19% y/y to EUR9.4 billion while EBIT climbed to EUR682 million, up from EUR455 million. The unit also made serious progress towards its margin target of 8%, with a rise on return on sales during the period to 7.2% y/y, up from 5.7% the year earlier.

Mercedes-Benz Vans saw an overall uplift in sales volumes of 7% y/y between April and June to 81,600 units. There was a 9% y/y rise in the core sales region of Western Europe to 54,300 units, with accelerated demand rises all recorded in Italy, Spain and France. Sales in NAFTA were also positive with a 46% rise in Canada the highlight. Revenue rose 13% to EUR2.8 billion (second-quarter 2014: EUR2.5 billion) although the division's second-quarter operating profit of EUR234 million was down slightly y/y thanks to a one-off gain in 2014 as a result of the company's Chinese JV.

Daimler Buses' second-quarter unit sales of 7,300 buses was down on the figure of 8,100 units recorded the year before, although it matched the revenue figure of EUR1 billion. EBIT was EUR57 million in comparison to EUR50 million last year, with efficiency improvements and currency gains helping out.

Outlook and implications

Daimler's management will be content with another strong set of financial numbers for the second quarter. It is further vindication for the decision to stick with Dieter Zetsche as CEO after he came under pressure in the wake of the failed alliance with Chrysler and in reference to Daimler's performance in the wake of the last financial crisis. The company has been reinvigorated by the success of its new passenger car range which began with the new B-Class in 2011 which heralded a new generation of compact cars based on the firms new MFA architecture. This was followed by the very successful E-Class facelift and the other iterations of the compact car platform, including the popular CLA-Class and the GLA-Class, while the new C-Class has also made big inroads into the traditional segment leader the BMW 3-Series. Big strides have been made in design and interior quality and styling, and design chief Gorden Wagener should take significant credit for this revival. The company will be further bolstered in the second half of 2015 with the launch of the new GLE-Class SUV, which replaces the GLK-Class while further launches like the GLC-Class have also increased the scope of the range. But while the Mercedes-Benz passenger car range has performed well and is a good news story, there are some significant challenges on the horizon. The company performed incredibly well as Mercedes-Benz cars recorded a 37% y/y rise in sales in China in the second quarter but this growth level will not be sustained with the cooling of the Chinese market, which is particularly hurting Audi as the premium market leader in the country. There are currently significant regional variations in the performance of the truck business's core regional markets, with Brazil and South America continuing to record alarming sales declines. However, on an overall basis the company remains in very good shape, with the core passenger car brand closing the gap to BMW and Audi, while an increased cash pile rising from EUR17 billion at the end of last year to EUR18.4 billion at the end of June, allowing the company to be cushioned against unexpected headwinds and allows the possibility of further strategic acquisitions. For the full year Daimler is expecting significantly increased EBIT and revenue for 2015 with a further improvement to the cash flow of the industrial business.