Daimler Sees Strong Recovery in Historic Truck Spinoff Year
(Bloomberg) -- Daimler AG expects significant earnings improvement this year as vaccinations accelerate and an economic recovery sustains strong demand for the maker of Mercedes-Benz luxury cars, which is preparing to spin off its trucks division.
Group sales, revenue and operating profit will be “significantly higher,” Daimler said Thursday, weeks after reporting better-than-expected preliminary results for the year. The company plans to lift the dividend to 1.35 euros from 0.90 euro last year, when the pandemic shuttered factories and carmakers conserved cash during the most challenging times in decades.
Orders for the revamped flagship Mercedes S-Class sedan, one of the manufacturer’s biggest cash cows, are 30% higher compared with the predecessor, Kallenius said in a Bloomberg Television interview. The car will be flanked by an electric sibling dubbed EQS that he said will generate “healthy” returns right from the start.
After this month’s decision to separate the trucks division, Kallenius, 51, is focused on lifting returns and making the German industrial giant more nimble. While the worst of the pandemic disruptions have passed, obstacles remain. Demand in Europe fell to a record low in January and a global shortage of semiconductor chips is stifling output.
Daimler said it’ll recover production lost due to chip supply bottlenecks over the course of the year but cautioned the situation remains volatile. The manufacturer finished up 2.2% in Frankfurt trading, valuing the company at 71.6 billion euros ($86.4 billion).
Get More: Chip Shortage Seen Wiping Out $61 Billion of Auto Sales
Daimler and other traditional automakers have largely been missing out on the valuation boom for the likes of Tesla Inc. or Nio Inc. Despite a growing lineup of battery vehicles and a slew of gadgetry, many investors still doubt incumbents will be as competitive in the new era of battery vehicles constructed around powerful software stacks.
The transformation is contributing to massive shakeups at both Daimler and German peer Volkswagen AG, which is now considering a separate listing of its Porsche sports-car unit, according to people familiar with the matter.
Mercedes plans to step up its Tesla challenge and keep incumbent rivals like BMW AG at bay with a growing lineup of plug-in hybrid and fully electric cars. Their share in overall deliveries could almost double this year compared to 2020 and Mercedes expects to comply with stricter emission rules in Europe.
Apart from adding four fully electric models this year, the carmaker will unveil a fresh version of its C-Class sedan and station wagon next week. Mercedes’s combustion cars are “cash machines” that finance the transition toward electric cars that for now generate slimmer returns, Chief Financial Officer Harald Wilhelm said.
After clamping down on expenses last year, Daimler expects some costs like travel expenses to creep back up, Wilhelm said, pledging to keep fixed costs stable compared to last year. Kallenius said the carmaker had to become leaner in the coming years.
Daimler last month reported preliminary full-year results that were higher than initially anticipated, thanks to a stronger fourth quarter led by a recovery in China. It generated 6.6 billion euros in earnings before interest and tax and 8.3 billion euros in industrial free cash flow.
What Bloomberg Intelligence Says:
Daimler continued its positive momentum with bullish 2021 guidance, which should result in an 10% upgrade to consensus Ebit given an 8-10% Mercedes Ebit margin target. The outlook assumes improved Chinese demand, a high-margin new S-Class and continued cost savings, though we have question marks over 1H European demand.
--Michael Dean, BI automotive analyst
Click here to read the report.
The key Mercedes-Benz Cars and Vans division, where the company last year cut about 7,000 jobs, made up the bulk of the profit with 5.17 billion euros. Returns are expected to rise to 8% to 10% this year, up from 6.9%. Margins at the trucks unit will also rise strongly to as much as 7%, Daimler said.
The outlook on the company’s margins was positive, Jefferies analyst Philippe Houchois said in a report, with the low end of Daimler’s predicted ranges beating expectations.
Sanford C. Bernstein analyst Arndt Ellinghorst expects that after the truck spinoff, investors will value the Mercedes car unit at as much as 65 billion euros and the trucks division at as much as 35 billion euros.
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