Mercedes Races Towards Long-Term Profit Target

If Global Economy Starts To Slide, All Bets Are Off.

Mercedes Races Towards Long-Term Profit Target

Mercedes made progress in the third quarter towards its long-term goal of a 10 per cent profit margin, and one investor thinks it might already be there.

Parent company Daimler said Mercedes Cars raised earnings before interest and tax by 29 per cent in the third quarter to €1.6 billion compared with the same period of 2013, as buyers scrambled to buy its nifty new saloons and SUVs.

Commerzbank analyst Daniel Schwarz said Mercedes’ margin was 8.5 per cent in the third quarter, and asked “what stands between this and a sustainable 10 per cent EBIT margin”?

“Management sees several levers – cost and production inefficiencies need to be removed, catch up with peers in China (by the end of 2015 Mercedes should have closed the gap in terms of dealers) and more cars need to be built on cost efficient modular platforms. All of this appears on track and, most importantly, in management’s hands,” Schwarz said.

Bernstein Research analyst Max Warburton thinks Mercedes may have already reached 10 per cent. The trouble is, it may be derailed by circumstances out of its control.

Ahead of plan
“The good news is Mercedes is ahead of plan and has probably just hit its long standing profitability target. The bad news is that due to the macro-economic context, there’s a risk we just saw Mercedes’ margins peak. Let’s hope the global economy proves more resilient than most fear – as Mercedes and the Daimler management team surely deserves better than to have all their hard work undone by events,” Warburton said.

“We’d argue that if the global economy – and premium car demand – holds up in 2015, then Daimler will prove capable of exceeding market expectations next year. But few are going to make that call at the present time,” he said.