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Mercedes Resists Faltering China With Powerful Profits

Mercedes Resists Faltering China With Powerful Profits.

“We expect sales momentum to continue” – Zetsche

Mercedes Benefitting As Audi, BMW Ranges Look Old.

While BMW and Volkswagen investors wobble from real or imagined fears about China, Mercedes-Benz sailed serenely on reporting sharply higher sales there, while reporting much improved profits.

Investors wondered whether Mercedes-Benz could carry on improving its performance, but parent company Daimler’s CEO Dieter Zetsche had no doubts.

“We expect sales momentum to continue,” Zetsche was quoted by Reuters as saying, answering questions after the second quarter financial results were announced.

In the second quarter, Daimler’s earnings before interest and tax (EBIT) rose 54 per cent to €3.8 billion. Mercedes-Benz profit margin in the quarter zoomed to 10.7 per cent.

Investment banks were duly impressed, but wondered whether this was repeatable.

“The question on investors’ minds is clearly whether margins have now peaked. Management was eager to point out that (the second half) should be stronger than (the first half) for the business and momentum should build in to 2016, but yesterday’s stock pullback implies investors are yet to be convinced,” said Barclays Bank analyst Kristina Church.

After the results news, Daimler shares, up over 20 per cent this year, slipped 1.1 per cent. Since then the shares have shed another 3.5 per cent.

Mercedes said its new cars are selling well, led by the flagship S-class and top of the range Maybach, which accounts for 20 per cent of S-Class sales in China. The GLA, C-class and compact cars are doing well too, Church said. A new E-class next year should carry the momentum on.

Underestimate?
Commerzbank analyst Sascha Gommel said estimates of Daimler’s full year profit has advanced to €12.7 billion from previous estimates of €12.2 billion, and that could be an underestimate.

“Ongoing updates of the model line-up as well as a vigorous approach on pricing should help Mercedes sustain the (profit) margin,” Gommel said, adding that the company has decoupled itself from overall market weakness.

“China sales grew 35 per cent year on year in June against a market that was down 3.4 per cent. We gained the impression (from a company briefing) that Daimler’s upcoming July and August sales growth should again be strong. In addition, Mercedes is strongly focussing on net pricing which supports profitability,” Gommel said.

Barclays Bank’s Church said Mercedes had made real gains in terms of efficiency and productivity which is building up profitability, while Audi and BMW are lagging in the sales race with ageing models.

“Even China is a bright spot, given strength of product and the ramp-up phase Mercedes is in due to prio execution issues in the region. We therefore expect the business to strongly exceed the underlying market in all regions, although do note that we remain nervous on a longer-term view that rising emissions standards will take its toll in terms of rising costs and weaker product mix,” Church said.

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