Daimler Earnings Preview: Margins Under Spotlight, S-Class Could Boost Pricing

Feb 5 2014, 12:58pm CST | by

Daimler Earnings Preview: Margins Under Spotlight, S-Class Could Boost Pricing

Daimler AG is scheduled to announce its Q4 and full-year earnings on February 6. In addition to the Mercedes-Benz brand, the company also sells buses and trucks under the Daimler brand. Cars and vans sold under the Mercedes brand account for more than 70% of the valuation, as per our estimates. The company has had a very strong end to 2013, with shares of the company up 15% in the last six months. After a strong third quarter showing, the company now expects the fourth quarter profits to exceed those in Q4 2012. However, for the full year, profits would still trail those in 2012 due to weak results in the first quarter of the year.

The automaker introduced a number of new and refreshed models in 2013, including the E-Class, S-Class and the new CLA, due to which sales accelerated in the second half of the year. The product offensive is part of Mercedes’ strategy to regain the crown of the world’s largest automaker by 2020.

We have a price estimate of $78 for Daimler’s stock, which is roughly in line with the current market price.

Here are some of the trends to watch out for in the upcoming earnings:

(a) Margin Expansion

Investors will be keenly eyeing the reported operating margins since the automaker is targeting long term margins of 9-10% for its Mercedes division. During the first quarter of 2013, the automaker’s operating margins had declined to 3.3% due to a number of one time expenses associated with model makeovers. However, the margins rebounded to 6.6% in the second quarter and improved further to 7.3% in the third quarter. Mercedes’ refreshed portfolio has pushed up the average pricing, which has expanded the overall margins.

Daimler’s management had always maintained that the second half of the year would be better than the first half. However, it remains to be seen whether the company can improve its margins from here on. It is also important to take into account that margins usually shrink in the fourth quarter (on a sequential basis), since automakers offer greater incentives and discounts to meet their annual targets as well as to boost sales in order to claim the bragging rights of highest selling vehicles.

(b) Unit Sales Growth

Mercedes narrowed its gap with Audi in 2013 as its unit sales rose 11% to 1.45 million units. In the U.S., Mercedes edged out BMW as the number one luxury automaker, helped by the introduction of the all new CLA. The automaker sold 312,534 units in the U.S. in 2013, about 14% more than the 2012 figure. Furthermore, Mercedes also showcased the remodeled version of the C-Class at the Detroit Auto Show. A new SUV, named the GLA, will also be released in March this year.

In China, Daimler’s sales jumped 11% to 218,045 units. Sales accelerated during the second half of the year, helped by an expanded portfolio, a better dealership network and an improved sales network. Daimler is also manufacturing more vehicles in China in order to by pass the country’s high import duties. In August 2013, the automaker pledged 2 billion euros ($2.7 billion) to raise the level of production in China. Prior to this investment, Mercedes imported half of its vehicles in China. If these investments have the intended effect, Mercedes should continue to narrow the gap with its German rivals.

Mercedes’ European sales are also extremely critical to the company’s bottom line. In fact, Western Europe accounts for about 50% of Mercedes unit sales. The European auto market declined in 2013, but the general consensus is that the market has bottomed out and should grow 2-3% in 2014. Thus, any improvements in the overall automotive market should benefit all automakers, including Mercedes. In 2014, Mercedes’ sales gain could come from an unlikely source – Europe.

(c) Pricing

The pricing realized by the company will be a key metric to watch out for. A deterioration in the average revenue per model suggests that most of the incremental sales are coming from the lower priced vehicles and/or that the automaker is having to offer greater incentives in order to lure customers. In such a scenario, Daimler might find it difficult to achieve its long term margin projections.

Similarly, an increase in the average revenue per model would suggest that the company’s vehicles are proving to be popular among its customers and that it doesn’t have to survive on razor thin margins. Mercedes received 30,000 orders of the refreshed S-Class (often costing more than $100,000) within three months of its launch. Therefore, we could see some pricing gains in the fourth quarter, helped by the S-Class. On the other hand, there could be some deterioration in the full year pricing due to tepid first quarter results, combined with the strengthening of the dollar in 2013.

See full analysis for Daimler AG

See More at Trefis | View Interactive S&P Capital IQ Analyses (Powered by Trefis)
/>

Like our charts? Embed them in your own posts using the Trefis WordPress Plugin.

Source: Forbes Auto

 
 

Don't miss ...

 

<a href="/latest_stories/all/all/30" rel="author">Forbes</a>
Forbes is among the most trusted resources for the world's business and investment leaders, providing them the uncompromising commentary, concise analysis, relevant tools and real-time reporting they need to succeed at work, profit from investing and have fun with the rewards of winning.

 

blog comments powered by Disqus

Latest stories

IPad Air Giveaway 2014 is Online
IPad Air Giveaway 2014 is Online
Our sister site I4U News is giving away a brand new iPad Air or if you can wait an iPad Air 2. This is an $499 value.
 
 
Your Parent Or Kid Moved In: Are You Covered?
A record 57 million Americans now live in multigenerational family households — double the number in 1980, according to a new Pew Research Center study. And I bet many of them have the wrong homeowner’s or renters...
 
 
Pandora Looks to Challenge Terrestrial Radio's Dominance in Cars
Pandora Media is one of the largest Internet radio providers in the U.S. with more than 75 million active users. While the company’s active user count has increased at a robust pace historically, it is likely to slow...
 
 
Are General Manager Salaries About To Skyrocket? Will There Be A Front Office Salary Cap?
Are General Manager Salaries About To Skyrocket? Will There Be A Front Office Salary Cap?
It’s January 2026. New York Yankees owner Hal Steinbrenner gets out of his driverless car and triumphantly marches before the gathered press to introduce his prized new free agent. It’s a record-breaking contract—over...
 
 
 

Latest from the Network

Self-regulation skills prepare children for school
Washington, Nov 23 (IANS) Efforts to utilise music and games to help pre-schoolers learn self-regulation skills could help prepare at-risk children for kindergarten education, a new study says. The intervention was...
Read more on Celebrity Balla
 
Anti-HIV drugs can affect unborn babies' hearts
Washington, Nov 23 (IANS) The drugs given to HIV-positive pregnant women can cause significant long-term heart problems for the non-HIV-infected babies they carry, says a new study. Such medicines help prevent the...
Read more on Business Balla
 
Sound training helps brain keep distractions at bay
New York, Nov 23 (IANS) The ability to sustain focus on a goal goes down with age but researchers, including of an Indian-origin, have discovered that with the help of a sound training, even the elderly can learn to...
Read more on Business Balla
 
New radiation device to strengthen public security
New York, Nov 23 (IANS) A new compact radiation device that can be operated in room temperature can significantly improve public security by detecting explosives, chemical agents and dangerous biological substances...
Read more on Business Balla
 
Trinidad takes India's support to improve water, sewerage system
Port-of-Spain, Nov 23 (IANS) India's High Commissioner to Trinidad and Tobago, Gauri Shankar Gupta announced that a team of technical officials from the Water and Sewerage Authority (WASA) will visit India next month...
Read more on Politics Balla
 
Office Depot ready for Black Friday
Office Depot is looking to cash in on laptops and tablets for the upcoming 2014 version of the Black Friday selling holiday. Office Depot plans on offering huge deals on several name brand computers. The company says...
Read more on Black Friday Countdown
 
Amazon set for Black Friday
Black Friday does not officially kick off until November 28th but one company who is taking a different approach to the holiday selling bonaza is Amazon. The company announced this week that their Black Friday specials...
Read more on Black Friday Countdown
 
39 injured as earthquake hits Japan
Tokyo, Nov 23 (IANS) At least 39 people were injured after a 6.7-magnitude quake on the Richter scale hit Japan, media reported Sunday. The quake hit Nagano City and Hakuba village in Japan, where at least 10 homes...
Read more on Politics Balla
 
Three killed in mine explosion in Malaysia
Kuala Lumpur, Nov 23 (IANS) At least three workers were killed and 24 others, six of them serious, injured in an explosion in a coal mine in Malaysia, media reported Sunday. The explosion took place in a coal mine in...
Read more on Politics Balla
 
UN slams terrorist attack in Kenya
United Nations, Nov 23 (IANS) UN Secretary-General Ban Ki-moon condemned the terrorist attack on a bus in northern Kenya that left at least 28 people dead. "The secretary-general condemned the attack Saturday on a...
Read more on Politics Balla