Daimler lifts profit forecast as China snaps up luxury cars

Daimler lifts profit forecast as China snaps up luxury cars

Reuters  | Oct 23, 2020 11:06

Daimler lifts profit forecast as China snaps up luxury cars

FRANKFURT (Reuters) - Daimler (DE:DAIGn) raised its profit outlook for 2020 on Friday after a record 24% jump in Chinese demand for its Mercedes-Benz cars boosted margins in the third quarter, though it warned that a spike in COVID-19 infections made forecasting hard.

Earlier this week, Daimler's chief executive said there was anecdotal evidence that wealthy Chinese families unable to splash out on expensive European holidays during the pandemic were buying luxury goods at home instead.

Benefiting from higher prices and a fall in fixed costs, the adjusted return on sales by its Mercedes-Benz cars and vans division rose to 9.4% in the quarter ending Sept. 30 from 7% a year earlier, rebounding from minus 1.5% in the second quarter.

The German car and truck maker said it now expected full-year earnings before interest and taxes (EBIT) to match last year's levels, whereas it had previously forecast a drop in earnings. In 2019, EBIT came in at 10.3 billion euros.

A spike in COVID-19 infection rates in recent days has not hit visits to its showrooms, orders or sales, the carmaker said, but it warned that its outlook was based on the assumption that conditions would continue to normalise.

Daimler shares climbed following the results and were trading 2% higher at 0900 GMT.

In the third quarter, Daimler's adjusted EBIT rose to 3.48 billion euros ($4.1 billion) from 3.14 billion a year earlier.

Margins recovered despite a jump in sales of less profitable plug-in hybrid and electric vehicles (EVs) to 45,000 cars.

Sales of low-emission cars are expected to accelerate in the fourth quarter with deliveries in the triple-digit thousands, Daimler said, adding that the vehicles were all sold at a profit and would help it meet European emissions goals.

"We appreciate the fact the Mercedes can deliver very high margins whilst selling an increasing number of electrified vehicles. This should calm down some of the fears concerning alleged material profitability erosion from EVs," Arndt Ellinghorst, analyst at Bernstein Research, said on Friday.

To help offset lower profits from hybrid and electric cars, Daimler cut costs, with 2,000 staff agreeing to voluntary redundancy, the carmaker said.

The company said it was also continuing to seek solutions for divisions that are losing money, such as its ride-hailing joint venture with BMW (DE:BMWG). Uber (N:UBER) has offered more than 1 billion euros to buy it, Germany's Manager Magazin said on Wednesday.

Deliveries of Mercedes Benz cars and vans were down 4% in the quarter as the pandemic continued to weigh on demand, prompting Daimler to reiterate that it expects overall sales and revenue in 2020 to be significantly lower than last year.

A spike in infection rates in Germany has made further predictions about the outlook "increasingly difficult", Chief Financial Officer Harald Wilhelm told reporters on a call to discuss the quarterly results.

© Reuters. FILE PHOTO: The Mercedes-Benz logo is seen near the Daimler headquarters, as the spread of the coronavirus disease (COVID-19) continues in Stuttgart

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