The new introductions and model refreshments finally began to
make a mark on Daimler AG's (NYSE:DAI) earnings as the company
reported a strong set of third quarter numbers. Daimler AG's
revenues jumped 5% to 30.1 billion euros (~$41 billion), helped by
higher sales of vehicles sold under the Mercedes-Benz brand. Net
income swelled 61% to 1.9 billion euros (~$2.6 billion).
Daimler now expects the fourth quarter operating profits to be
higher compared to the previous year period. However, for the full
year, profits would still trail those in 2012 due to weak results
in the first quarter of the year.
We have a
price estimate of $72 for Daimler's stock
, which is about 10% lower than the current market price. We are in
the process of revising our estimates to incorporate the latest
Cars and vans sold under the Mercedes brand account for more
than 70% of the valuation, as per our estimates.
In addition to the Mercedes-Benz brand, the company also
sells buses and trucks under the Daimler brand.
Moving In The Right Direction
Daimler AG's stock has climbed more than 40% since the start of
the year as renewed enthusiasm about the company's product
portfolio has lifted the shares higher. It was important for
Daimler to post strong results this time around in order to
reaffirm the trust of the market. The management had stressed that
the second half of the year would be better than the first.
Therefore, it was the magnitude of the margin expansion that was in
Back in the first quarter of the year, Daimler's operating
margins had fallen to 3.4% due to one-time costs associated with
the launch of new/refreshed models, causing the company to lower
its guidance. Thus, there were concerns that the automaker
would not be able to deliver on its promise.
However, margins rebounded to 6.6% in the second quarter and the
automaker's overall results showed signs of a turnaround. With the
newly released models fetching higher prices, the segment's margins
improved further to 7.3%. Daimler has a long-term target of
achieving 9-10% operating margins of its Mercedes-Benz, which is
critical if the automaker needs to close in on its German
counterparts. Rivals Audi and BMW regularly clock operating margins
in excess of 10% despite selling more vehicles.
Reinvigorated Product Portfolio Delivers Results For
Sales of Mercedes-Benz climbed 15% to 460,700 units (including
vans sold under the brand). For the first nine months of the year,
Mercedes sold 8% more vehicles than the previous year figure. A
steep rise in the company's Chinese sales and sustained demand for
Mercedes vehicles in the U.S. boosted the unit sales.
The year 2013 was going to be big for Mercedes as the automaker
was scheduled to debut a number of refreshed/new models, including
its best selling E-Class sedan. The product offensive is part
of Mercedes' strategy to regain the crown of the world's largest
automaker by 2020.
The new introductions will also fill in the gaps that had
existed till now in the automaker's product portfolio. For example,
the new CLA was launched to lower the entry level price of Mercedes
vehicles and help the company compete against the likes of
BMW's 1-series and 3-series, and Audi's A3 and A4, which are hugely
popular with the younger demographic. Similarly, the new
GLA-Class, introduced in the third quarter, is a subcompact SUV- a
profile that was missing in the automaker's portfolio until
During the third quarter, Mercedes also debuted the refreshed
S-Class, for which it has already received 30,000 orders . With the
deliveries of the S-Class and GLA-Class models are set to gain
momentum, Mercedes operations should continue to witness
improvement in the fourth quarter.
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