Daimler Q4 Net Profit Surges on Strong Performance at Mercedes

Daimler yesterday reported that its net profit for the fourth quarter of 2007 surged to 1.7 billion euro after a net loss of 12 million euro in the same period of 2006, driven by earnings momentum at its core Mercedes-Benz cars division and a strong performance from its truck division. Earnings before income tax (EBIT) more than doubled to 139 billion euro from 550 million. Fourth-quarter revenue was slightly down on the year at 26.5 billion euro from 27.02 billion euro in the same period of 2006. For the full-year 2007, EBIT rose 74% to 8.7 billion euro, up from 4.99 billion euro in 2006. Net profit rose 5% to 3.98 billion euro in 2007, from 3.78 billion euro in 2006. Revenue increased to 99.39 billion euro in 2007 from 99.22 billion euro a year earlier. Due to a 2.2 billion euro tax write-down associated with the sale of Chrysler and other charges, revenue at MCG rose to 52.43 billion euro in 2007 from 51.4 billion euro in 2006.

Speaking at an analyst conference, Chief Financial Officer Bodo Uebber said that Daimler would hedge around 70% of its exposure to unfavourable exchange rates, especially the U.S. dollar, in 2008. Uebber said Daimler's overall dollar exposure is currently around 10 billion euro, adding that the hedging rate for 2009 is currently at 40%. Uebber also said that Daimler had booked the value of the company's 19.9% stake in Chrysler at 900 million euro, down from its September 2007 figure of 1.4 billion euro.

Also speaking at the annual earnings conference, CEO Dieter Zetsche further alluded to Daimler's plans to build a new car manufacturing plant in a low–cost location in Eastern Europe. "A new plant in this segment needs more than 100,000 capacity. Anything less doesn't make sense. This gives you the indication about what we are planning," Zetsche said. Daimler is planning a new plant in the region to build a new line-up of A- and B-Class cars (see Europe: 29 January 2008: Daimler Shortlists Countries in New Plant Search). Although Zetsche did not confirm the countries involved, he noted that "some of the alternatives are East of Germany." Daimler is currently shortlisting a number of countries as preferred destinations for a new plant, of which Romania and Poland are favourites.

Zetsche added that the talks over possible cooperation projects with BMW were on-going and "good", but that the next generation A- and B-Class models would be developed mainly alone.

Outlook and Implications

Daimler has forecast higher unit sales this year, with growth in emerging markets and a recovery in its domestic market and a rise in North America, despite the economic headwinds. However, Zetsche said at the conference yesterday that the company would seek "profitable growth," indicating that Daimler would not increase volume at any price. Daimler is also predicting 2008 earnings before interest and taxes "well above the prior-year level," with further growth anticipated in 2009. Daimler achieved its long-term goal of a 9%+ return on sales in the fourth quarter, but the long-term target for that figure on an annualised basis is 2009.

Daimler was also hit by a raft of charges which it booked in the fourth quarter, including 235 million euro to European Aeronautic Defence & Space (EADS) for overrunning Airbus costs and 322 million euro of costs related to additional restructuring steps at Chrysler due to its agreement with the United Auto Workers union. Daimler holds a 19.9% equity interest in Chrysler and a 15% stake in Airbus parent EADS.

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