Daimler profits double as Mercedes recovery continues

FRANKFURT: Daimler's first quarter operating profit more than doubled as surging sales of new cars and improving margins in its Mercedes-Benz luxury auto division extended its recent recovery.

Having dropped to third place in luxury car sales rankings in 2011 behind BMW and Volkswagen's Audi, Mercedes-Benz closed the gap in 2013 thanks to redesigned vehicles and new compact cars such as the A-Class sedan.

The group said on Wednesday sales of Mercedes-Benz cars rose 14% in the first quarter, driven by demand from China and the United States, as it prepares to roll out a fresh version of its new C-Class model, currently the best-selling Mercedes-Benz.

"Daimler's rebirth and rehabilitation continues with these first quarter results. This is supposed to be Merc's weakest quarter of 2014 with the changeover of the C-Class, so it bodes well for the rest of the year," said Bernstein analyst Max Warburton in a note to clients.

Daimler shares, which have outperformed Germany's blue-chip DAX index this year, were down 1.9% at 0825 GMT due to what traders said was an opportunity to take profits.

Daimler said group earnings before interest and tax (EBIT) from ongoing business rose to €2.07bil (US$2.9bil) in the three months ended March, up from €949mil in the year-earlier period, and above the €1.906bil forecast in a Reuters poll.

Including buses and trucks, total sales rose 13%.

Profitability at Mercedes-Benz has improved as a range of new vehicles including the A- and B-Class compact cars as well as its flagship S-Class hit showrooms, more than doubling the division's return on sales from ongoing operations to 7% in the quarter, up from 3.3% in the year-earlier quarter.

Daimler said it aimed to increase that to 10% in the medium term.

The company reiterated it saw significantly higher EBIT from ongoing business this year, despite currency headwinds of about €1bil.

Daimler has hedged around two thirds of its currency exposure, chief financial officer Bodo Uebber said on a conference call.

The Stuttgart-based automaker's first-quarter results stand in sharp contrast to last year, when Daimler warned it might have to cut its profit expectations only nine weeks after it had reported full-year results, blaming a slump in car sales.

In February this year, Daimler said it expected group EBIT to increase "significantly" in 2014 from the €7.9bil it reported for last year.

Furthermore, it said it saw significantly higher sales at Mercedes-Benz than the 1.566 million cars it sold in 2013.

Daimler said it would take no action in response to the West's standoff with Russia over its actions in Ukraine, and that investments would continue.

"This is a matter for politics to resolve. It would be a mistake to put everything on hold," Uebber said.

Daimler sold 11,000 passenger cars and 500 trucks in Russia in the first quarter.- Reuters