Mercedes Car Group achieves EBIT of €1,204 million
Muamer Hodzic August 29, 2007
The numbers for the 2nd quarter have come out, and even though they seem high, they fall short of what DCX earned last year. DaimlerChrysler achieved EBIT (Earnings before Interest & Taxes) of €2,134 million in the second quarter, which is less than in Q2 of 2006: €2,374 million. The earnings trend was positively affected primarily by the Mercedes Car Group, which once again achieved a strong increase in its operating results, mainly due to quality and efficiency improvements, and a positive development of its sales structure.
The Mercedes Car Group achieved EBIT of €1,204 million in the quarter under review, a significant increase compared to the second quarter of last year (€690 million). The MB Group did sell less cars, 320,200 vehicles in the second quarter of 2007 (Q2 2006: 325,500), but they still managed to increased their earnings, due to revamping their cost structure.
Another great reason why the slit was good move, by just looking at some of the numbers here. The full and official press release is after the break.
Press Release:
DaimlerChrysler (stock-exchange abbreviation DAI) today publishes its interim report on the second quarter of 2007 as well as Q2 results for the Group, the Financial Services division (excluding Chrysler Financial NAFTA) and the discontinued operations of the Chrysler Group and Chrysler Financial (NAFTA). Second-quarter results for the Mercedes Car Group and the Truck Group as well as for the Van, Bus, Other segment had already been disclosed on . The present reporting structure now reflects the new structure of the DaimlerChrysler Group.
Due to the disposal of the North American financial services business related to Chrysler, which took effect with the closing of the transaction on August 3, 2007, the figures for the Financial Services division are shown for the first time without Chrysler Financial (NAFTA); the prior-year figures have been adjusted accordingly.
DaimlerChrysler achieved EBIT of €2,134 million in the second quarter (Q2 2006: €2,374 million). The earnings trend was positively affected primarily by the Mercedes Car Group, which once again achieved a strong increase in its operating results, mainly due to quality and efficiency improvements, and a positive development of its sales structure. Despite the expected strong decline in unit sales in the NAFTA region, the Truck Group’s EBIT was also above the prior-year quarter. The EBIT of Financial Services was at the prior-year level.
The decrease in Group EBIT is mainly due to the lower profit contribution from Van, Bus, Other; this segment’s earnings in the prior-year period were positively affected by gains totaling €814 million on the valuation of derivative financial instruments related to the transfer of interest in EADS. However, lower expenses for the implementation of the new management model (Q2 2007: €42 million; Q2 2006: €137 million) were recorded in the current reporting period.
Within the context of efficiency-improving programs, measures were defined to further improve the utilization of the Group’s production facilities. As a result, the depreciation of property, plant and equipment was adjusted to the longer useful lives. In the second quarter of 2007, this led to a positive effect on Group EBIT in an amount of €226 million. Of that total, €152 million is attributable to the Mercedes Car Group, €34 million to the Truck Group and €40 million to Van, Bus, Other.
Second quarter net profit amounted to €1,849 million (Q2 2006: €2,146 million), equivalent to earnings per share of €1.74 (Q2 2006: €2.07). Net profit from continuing operations was €1,443 million (Q2 2006: €1,804 million); representing earnings per share of €1.35 (Q2 2006: €1.74).
Unit sales and revenues
The Mercedes Car Group and Truck Group divisions and the Vans and Buses units sold a total of 516,400 vehicles in the second quarter of this year (Q2 2006: 536,600).
The Group’s second-quarter revenues decreased by 3% to €23.8 billion; adjusted for exchange-rate effects and changes in the consolidated group, revenues were at the same level of the previous year.
At the end of the second quarter of 2007, 271,486 people were employed in the Group’s continuing operations (end of Q2 2006: 279,018). Of this total, 166,581 were employed in and 24,559 were employed in the (end of Q2 2006: 169,582 and 28,598 respectively).
Effects of closing and discontinued operations in detail
Net profit from discontinued operations includes the operating loss of both the Chrysler Group and the related financial services business in , as well as the net interest result and income taxes connected with these activities. The operating results no longer include scheduled depreciation and amortization of non-current assets as of May 16, 2007. As a result, the operating results were positively impacted by €0.7 billion after taxes.
In the second quarter, net profit from discontinued operations amounted to €406 million (Q2 2006: €342 million). Therein included is an extinguishment loss after tax of €0.3 billion resulting from the early redemption of long-term financing liabilities of the Chrysler Group.
DaimlerChrysler anticipates a charge against earnings of €2.5 billion in full-year 2007 as a consequence of transferring a majority interest in the Chrysler activities and the closing of the transaction on August 3, 2007. This charge is lower than the estimate of €3-4 billion disclosed in May. It results from the positive result of the discontinued operations in the second quarter as well as a charge against earnings in the magnitude of €3 billion in the third quarter of 2007. The charge in the third quarter results primarily from the valuation of deferred tax assets which are recognized at DaimlerChrysler. It will be necessary to assess the recoverability of these deferred tax assets is affected due to the Chrysler-transaction.
In June, DaimlerChrysler redeemed three long-term bonds ahead of schedule in accordance with the contractual conditions and announced a redemption offer for an additional bond. This resulted in a prepayment penalty of approximately €0.4 billion. There are no changes to the other bonds issued and guaranteed by DaimlerChrysler AG.
In the financial services business of the Chrysler, Jeep® and Dodge brands, Cerberus took over the financing from DaimlerChrysler AG when the transaction was closed; this led to a cash inflow of €25.6 billion.
In light of highly volatile loan markets, DaimlerChrysler and Cerberus have agreed to support the financing of the majority takeover of Chrysler by Cerberus. Both companies subscribed $2 billion of second lien loan for Chrysler’s automotive business, to be drawn within 12 months. DaimlerChrysler’s portion will be $1.5 billion. The debt will be priced at market conditions. The maturity of this loan is 7 years. As of August 3, 2008, DaimlerChrysler has the right to sell this loan in the credit market.
Details of the divisions
The Mercedes Car Group sold 320,200 vehicles in the second quarter of 2007 (Q2 2006: 325,500). The division’s revenues of €12.6 billion reached the prior year level.
The Mercedes Car Group achieved EBIT of €1,204 million in the quarter under review, a significant increase compared to the second quarter of last year (€690 million). The improvement in earnings resulted from a positive development of the sales structure as well as from quality and efficiency improvements achieved as a part of the CORE program. However, second-quarter EBIT was reduced by exchange-rate effects.
The Truck Group sold 112,100 vehicles in the second quarter of this year, which as expected was lower than the high prior-year figure (Q2 2006: 132,400). The figure reported in the 2006 included an additional 6,200 Sprinter vans produced by Trucks NAFTA. The sales decrease was primarily due to a drop in demand caused by stricter emission regulations in the , and . Revenues of €6.9 billion were 19% below the figure for the second quarter of last year.
The Truck Group posted second-quarter EBIT of €601 million (Q2 2006: €585 million). Earnings were impacted by an increase in unit sales in and , improved product positioning and further efficiency improvements. On the other hand, there were negative effects from lower truck sales in the NAFTA region and in . The measures initiated for the management of market cycles and the other initiatives of the Global Excellence program had a positive effect. The sale of real estate properties in resulted in a gain of €68 million in the second quarter of 2007.
The business development of Financial Services was generally stable in the second quarter of 2007. The Financial Services division posted EBIT of €220 million (Q2 2006: €220 million). Despite rising interest rates in , earnings were of the same magnitude as the high level of the prior-year period, partially due to the release of certain valuation allowances in the non-automotive financial services business.
Contract volume increased by 8% to €58.1 billion; adjusted for exchange-rate effects there was an increase of 10%. New business decreased slightly from €7.5 billion to €7.3 billion; adjusted for exchange-rate effects there was a slight increase of 1%.
Contract volume in the region , Africa & Asia/Pacific of €33.2 billion surpassed the high prior-year figure by 6%. In Germany, DaimlerChrysler Bank’s portfolio grew to €16.1 billion (end of Q2 2006: €15.4 billion). The total deposit volume increased significantly over the previous year to €3.8 billion (+17%). Contract volume in the region amounted to €20.9 billion at the end of the quarter (end of Q2 2006: €19.6 billion). Adjusted for exchange-rate effects, the portfolio grew by 12%.
The Van, Bus, Other segment posted second-quarter EBIT of €257 million (Q2 2006: €1,121 million). In the second quarter of 2006, a gain of €814 million resulting from the valuation of derivative financial instruments entered into in connection with the transfer of interest in EADS positively impacted EBIT of the Van, Bus, Other segment; most of this valuation gain was accounted for by a derivative transaction that was finally executed in the first quarter of 2007. In total, income from the participation in EADS was €56 million (Q2 2006: €940 million).
Outlook
In the second half of this year, DaimlerChrysler expects the expansion of global automotive markets – for both passenger cars and commercial vehicles – to slow down compared to the same period of 2006. This is primarily due to developments in the triad markets. In full-year 2007, demand for passenger cars in the markets of North America, Western Europe and Japan is likely to fall slightly. However, significant increases in demand are anticipated for both passenger cars and commercial vehicles in the emerging markets of and , as well as in . Demand for trucks in is expected to fall sharply. The market volume for trucks in should also be significantly lower than in the prior year. In view of the positive economic conditions in , slightly positive market developments are anticipated. Total global demand for passenger cars and commercial vehicles should increase by approximately 3% in 2007 (2006: 4%).
For full-year 2007, DaimlerChrysler anticipates unit sales in a similar magnitude to the prior year (2006: 2.1 million vehicles).
The Mercedes Car Group continues to assume that its unit sales in the year 2007 will at least be equal to the record level of the prior year. Following the launch of two high-volume models in spring – the new C-Class sedan and the new smart fortwo, the station-wagon version of the C-Class will be presented at the Frankfurt Motor Show in September and will be available for sale by the end of the year. The division will continue to implement the CORE efficiency-improvement program in order to achieve profitable growth and create sustained value. For full-year 2007, the Mercedes Car Group expects to achieve a return on sales of significantly more than 7%. Despite increased expenditure for more efficient and alternative drive systems, the Mercedes Car Group aims to increase its return on sales to 10% by the year 2010.
The Truck Group anticipates significantly lower unit sales in 2007 than in the prior year. This is primarily due to a sharp drop in demand caused by stricter emission regulations in the , and . However, there will be positive effects from rising unit sales in and and from the implementation of the Global Excellence Program. Earnings are expected to be in the magnitude of the level achieved in 2006 despite market decline in the and.
The Financial Services division anticipates a stable development of business and earnings during the rest of the year. The separation of the financial services business in the NAFTA region will cause additional expenses. Financial Services, however, assumes that it will achieve a return on equity of more than 14% once again in full-year 2007.
As a result of strong demand for the Sprinter and the very positive development of the Vito/Viano models, unit sales of vans are expected to increase compared to the year 2006. And despite cyclical market downturns in some key bus markets, unit sales of buses are anticipated at the high level of the prior year due to very positive market developments in.
For the Group, total revenues are expected to be in the same magnitude as in 2006 (€99 billion).
In its new structure, the Group expects to achieve EBIT in the magnitude of €8.5 billion in full-year 2007 (2006: €5.0 billion). Significant special factors affecting earnings in 2007 are the gain of €1.4 billion realized on the transfer of interest in EADS and charges of €0.3 billion resulting from the implementation of the new management model.
The substantial special items shown in the following table influenced EBIT in the second quarters of the years 2007 and 2006:
