FRANKFURT (Reuters) - Germany’s Daimler AG (DAIGn.DE) stuck to its forecast for roughly flat underlying earnings this year, easing concerns that a slowdown in Chinese growth would force the luxury carmaker to cut its outlook and boosting its shares.
The group on Wednesday posted a smaller-than-expected 13 percent drop in quarterly operating profit as both its cars and commercial trucks business surprised positively, but cautioned that the economic environment was uncertain in nearly all regions.
“The risks will more likely increase in the second half rather than decrease,” Chief Executive Dieter Zetsche told reporters, citing concerns raised by his morning newspaper over China and the United States, as well as Europe.
“Every day we discuss intensively the macroeconomic clouds on the horizon,” Zetsche said.
Daimler said it still expects operating profit, or EBIT, from its ongoing business this year to be around the same as the 9 billion euros ($10.9 billion) it earned in 2011, and kept its target for free cash flow generation of over 2.3 billion euros when excluding one-offs like pension plan contributions and acquisitions.
Europe’s debt crisis is at least helping make the group’s largely German cost base more competitive internationally. Daimler had issued its profit target in February when the euro was trading at $1.30, instead of the current $1.21.
In the first half alone, Daimler had already collected the 400 million euros in currency gains it expected for the full year. Should the dollar stay at today’s levels, Zetsche now expects to gain another 300 million euros, excluding a somewhat negative mark-to-market effect on its more sophisticated financial “collar” hedges.
A spokesman for the company said Daimler had fully locked in its currency rates for this year, so there was little chance future fluctuations in the euro could provide a material impact. Daimler added it has already hedged roughly two-thirds of its U.S. dollar exposure for 2013.
Shares in Daimler closed 4.1 percent higher on Wednesday, easily outperforming all other blue chips in the benchmark DAX index .GDAXI as well as its European auto peers .SXAP.
While upholding its guidance for the full year will likely soothe some investor concerns that Daimler would revise its targets, some analysts have cautioned it may not allay fears for long given management’s less-than-sterling track record in predicting the company’s own earnings.
“Our concern is the opposite: that Daimler clings to guidance until the third quarter, potentially prolonging negative sentiment,” Morgan Stanley wrote on Monday in a preview of industry results.
Zetsche fired back, saying management would have acted had they felt guidance was unattainable: “If we were today of the opinion that we will issue a profit warning in the third quarter, then we would have to do so now, so this (speculation) is not entirely logical,” he said.
The CEO has come under fire for allowing Daimler’s cash cow, its Mercedes-Benz premium car business, to wither in the face of ever-stronger competition from Audi (part of Volkswagen AG (VOWG_p.DE)) and BMW (BMWG.DE).
Both rivals earn not only higher profits per car, but they also deliver far more cars every month to customers, thanks to making greater inroads into China, where Audi outsold Mercedes by a factor of nearly two to one in the first half.
“There’s a whole host of reasons” for this, Zetsche said, noting the company had to close its Beijing factory for six weeks and ramp up incentives for Chinese car buyers in the first quarter, for example.
“Having two different sales organizations, for import cars on the one hand and locally produced cars on the other, that were operating fully independently of each other was not optimal,” Zetsche told reporters, admitting for the first time that the problems were more than just temporary in nature.
“We also have marketing issues and dealer issues. We have started a very comprehensive analysis and are now in the process of identifying and executing on the corresponding measures.”
The Daimler CEO aims to at least begin closing the gap to BMW and Audi in terms of global volumes, with the help of a massive overhaul of its line of Mercedes compact cars.
Not only has the new A-Class received a different, sportier design, but it will also spawn an SUV derivative that can compete with the BMW X1 and Audi Q3 offroaders. A trendy coupe is also planned, based on the Concept Style Coupe that premiered at the Beijing auto show in April.
Mercedes seems confident enough of its success that it has awarded Finnish manufacturer Valmet Automotive MEO1V.HE a contract to build over 100,000 A-Class cars over a three-year period, since it expects its own factories will be running flat out even on a three-shift basis.
Daimler’s earnings before interest and tax (EBIT) fell 13 percent to 2.24 billion euros ($2.7 billion) in the second quarter, exceeding the 2.16 billion euro average estimate in a Reuters poll, as a weaker euro contributed 326 million euros to profits.
The EBIT margin at its Mercedes-Benz Cars division narrowed to 8.6 percent from 10.7 percent a year earlier, but still exceeded expectations of only 8.3 percent.
Editing by David Holmes/Catherine Evans