Daimler Surprises Investors With Unexpected Profit Rise

Daimler Surprises Investors With Unexpected Profit Rise.

Mercedes New E-class Rollout Will Help Too.

“a strong quarter and even a strong 2016 do not change the cycle”

      Mercedes parent Daimler surprised investors with a solid increase in profits which beat market estimates, but reaction was mixed.

    Daimler announced “preliminary” earnings in the second quarter rose 5.6 per cent after what it called “adjusted earnings before interest and taxes” of €3.97 billion. The figure came after set asides for airbag recalls and legal charges.

    Daimler retained its forecast that full year results will improve slightly on last year’s.

    Investors were not only surprised by the good profits, they were caught unawares by the early announcement from Daimler. The company broke the news early because German stock market rules call for a fast declaration if results are well ahead of expectations. This should curb the possibility of insider trading.

    Analysts said they were surprised because the company recently warned about weakness at its truck business.

    Daimler said the gain came from its vans and buses subsidiary, while earnings dropped at trucks and Mercedes Cars. It also excludes a provision of about €500 million euros from Takata Crop airbag recalls, and €400 million in legal coasts that Daimler didn’t explain.

    Morgan Stanley analyst Harald Hendrikse said Daimler’s results reflected the pattern of 2013 when first quarter results disappointed followed by a strong second quarter.

    Cycle peaked
    “However, a strong quarter and even a strong 2016 do not change the cycle. Global car sales growth will still slow; Daimler’s product cycle has peaked (see recent S class sales) and Truck production still has to fall sharply in the second half of 2016, in our view,” Hendrikse said.

    UBS Global Research was a little more optimistic, expecting Mercedes margins to remain strong in the second half as the new E-class is launched in the U.S. and China.

    Citi Research said Daimler remains its top pick in the auto sector with the overall negative earnings momentum about to ease.