World Economy Hits Daimler Earnings

Posted by: Jack Ewing on October 23, 2008

So it’s official. Global financial turmoil has hit the “real” economy in Germany. The country’s largest company, car and truck maker Daimler, reported Oct. 23 that operating profit in the third quarter of 2008 plunged 66%, to $830 million, while sales fell 7% to $30.5 billion. Daimler shares fell 5% shortly after the company released the discouraging numbers. Still, that was a modest drop compared to the 10% loss following a profit warning in July.

Both Western Europe (minus 14%) and the U.S. (minus 10%) showed steep sales declines. In Europe, sales suffered particularly in Italy and Spain. The drop in U.S. sales was offset partly by the success of the Smart car, so that the decline measured by units was only 5%. But that’s scant consolation, since the two-seat Smart does not generate as much profit as Mercedes premium cars.

Adding to the bad news, growth of the auto markets in emerging markets such as Eastern Europe has slowed “in some cases quite significantly,” Daimler said, though Mercedes-Benz car sales in China still managed to grow 46%, to 13,600 vehicles.

The outlook? Daimler again revised down its forecast for full-year operating profit (EBIT), to $7.7 billion from $9 billion. And the company seemed to lack confidence in any predictions, saying in a statement, “It is not yet possible to reliably assess how quickly the action plans announced by various governments will contribute to the stabilization of markets for financial services and goods.” Not very reassuring.

You have to dig pretty deep in the earnings report to find any good news, but there was a little. Sales of Mercedes-Benz, Freightliner and other truck brands rose 4% while operating profit rose 6%, though it’s hard to see how that growth will continue amid a global slowdown.

Probably the best news for Daimler wasn’t contained in the earnings report. The U.S. dollar has risen 20% from its low in April. That should make Mercedes more affordable for Americans contemplating their depressed stock portfolios and home equity.