Daimler Raises Financial Targets After Strong Q1 Results

More of a dream than the recent Daimler operational nightmares – if it continues?

Daimler AG (ticker: DAI) reported strong results for Q1 ending 31 March 2021 and raised its outlook for the full year. The Group’s total unit sales increased by 13% to 728,600 cars and commercial vehicles (Q1 2020: 644,300) due to the recovery of the global economy combined with what Daimler opines is “an attractive vehicle portfolio.” Revenue rose to €41.0 billion (Q1 2020: €37.2 billion) from favorable product mix and pricing. (Cash Crunch? BMW and Daimler to Sell PARK NOW Joint Venture to EasyPark Group, Daimler Earns €4.0 billion in 2020, Daimler to Spin-Off Daimler Truck into Separate Company)

The good operating performance in the first-quarter translated into an EBIT surge to €5,748 million (Q1 2020: €617 million). Adjusted EBIT, reflecting the underlying business, also multiplied to €4,970 million (Q1 2020: €719 million). China, the world’s largest vehicle market, was a key component in the comeback after it successfully fought off the Covid pandemic that Europe and the Americas are still struggling with.

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In the first quarter of 2021, net profit was €4,373 million (Q1 2020: €168 million). Net profit attributable to the shareholders of Daimler AG amounted to €4,290 million (Q1 2020: €94 million), leading to an increase in earnings per share to €4.01 (Q1 2020: €0.09).

 Investments and Liquidity

The Group’s investments in property, plant and equipment in the first quarter totaled €1.2 billion (Q1 2020: €1.3 billion). Research and development expenditure amounted to €2.4 billion (Q1 2020: €2.4 billion). The free cash flow of the industrial business was an inflow of €1.8 billion (Q1 2020: outflow of €2.3 billion), including investments in future products.

“This turnaround was triggered by a strong operating performance, focused capital allocation as well as effective working-capital measures. The adjusted free cash flow of the industrial business rebounded to €2.8 billion (Q1 2020: outflow of €1.9 billion). The net liquidity of the industrial business increased to €20.1 billion at the end of the first quarter, compared to €17.9 billion at year-end 2020. This is mainly a result of the strong free cash flow from the industrial business,” Daimler said.

Division Results

Sales by the Mercedes-Benz Cars & Vans division increased by 15% to 627,300 vehicles in the first quarter (Q1 2020: 546,700). Revenue was €26.9 billion (Q1 2020: €23.2 billion). EBIT amounted to €4,078 million (Q1 2020: €510 million) and the return on sales was 15.2% (Q1 2020: 2.2%). Adjusted EBIT reached €3,841 million (Q1 2020: €603 million) with the adjusted return on sales at 14.3% (Q1 2020: 2.6%). Cash flow before interest and taxes (CFBIT) was an inflow of €1,968 million (Q1 2020: outflow of €1,729 million). Adjusted CFBIT amounted to an inflow of €3,129 million (Q1 2020: outflow of €1,281 million). The adjusted cash conversion rate (CCR) was plus 0.8 (Q1 2020: minus 2.1).

• Sales by Mercedes-Benz Cars rose by 15% to 538,900 vehicles in the first quarter (Q1 2020: 470,600). Mercedes-Benz Vans’ sales were up 16% to 88,400 vehicles (Q1 2020: 76,200).
• Daimler Trucks & Buses division showed an increase in unit sales of 4% to 101,300 vehicles in the first quarter (Q1 2020: 97,600). Revenue was €8.7 billion (Q1 2020: €8.7 billion). EBIT amounted to €1,041 million (Q1 2020: €247 million) and the return on sales was 12.0% (Q1 2020: 2.8%). Adjusted EBIT was €518 million (Q1 2020: €247 million) and adjusted return on sales was 6.0% (Q1 2020: 2.8%). Cash flow before interest and taxes (CFBIT) soared to an inflow of €621 million (Q1 2020: outflow of €85 million). Adjusted CFBIT amounted to an inflow of €435 million (Q1 2020: outflow of €85 million). The adjusted cash conversion rate (CCR) was plus 0.8 (Q1 2020: minus 0.3).
• Daimler Trucks increased sales by 6% to 97,600 vehicles in the first quarter (Q1 2020: 92,500).
• Daimler Buses sold 3,700 vehicles, a decrease of 27% (Q1 2020: 5,100).
• Daimler Mobility increased by 4% to €16.8 billion in the first quarter (Q1 2020: €16.2 billion), driven by strong sales developments at the industrial business. Contract volume was €152.7 billion at the end of the quarter (end of 2020: €150.6 billion). Revenue was €7.0 billion (Q1 2020: €7.1 billion). The division’s EBIT amounted to €744 million (Q1 2020: €58 million). At 20.2%, return on equity was much higher than the 1.6% in the prior-year period. Adjusted EBIT was €691 million (Q1 2020: €58 million) and adjusted return on equity was 18.7% (Q1 2020: 1.6%).

Daimler Truck spin-off

Daimler intends create two ‘pure-play’ companies, one focused on cars and vans with the other on trucks and buses. It is intended that a significant majority stake in Daimler Truck will be distributed to Daimler shareholders. The transaction and the listing of Daimler Truck on the Frankfurt Stock Exchange are well on track and expected to be completed before year-end 2021. The project is currently in the preparatory and auditing phase. At an extraordinary general meeting in autumn, Daimler shareholders will have to approve this historic strategic step.

Outlook for Daimler and Divisions

Daimler expects a gradual normalization of economic conditions in the important markets. The company assumes that the world economy will be able to recover from the pandemic-related weakness of the year 2020, aided by the increasing availability of effective vaccines, among other things. Based on the expected market development and the current assessments of the divisions, Daimler continues to anticipate Group unit sales, revenues and EBIT in 2021 to be significantly above the prior year’s level. The current worldwide supply shortage in certain semiconductor components affected deliveries in the first quarter. Daimler anticipates that this shortage could further impact sales in the second quarter. Although visibility is limited at present, Daimler assumes some recovery in the third and fourth quarter.

Based on the performance in the first quarter, the divisions expect the following adjusted returns in the year 2021:

• Mercedes-Benz Cars & Vans: adjusted return on sales of 10 – 12%
• Daimler Trucks & Buses: adjusted return on sales of 6 – 7%
• Daimler Mobility: adjusted return on equity of 14 – 15%.

Daimler’s business plan covers the full year 2021 and is based on the existing Group structure, including Daimler Trucks & Buses. The spin-off of Daimler Truck, including significant parts of the related financial services business, will be examined before the end of 2021. Before the spin-off, Daimler will reclassify Daimler Truck as discontinued operations. The expected considerable positive effects in the second half of the year cannot be reliably determined at present.

The adjusted cash conversion rate (ratio of cash flow to EBIT) for the Mercedes-Benz Cars & Vans division in 2021 is expected to be between 0.7 and 0.9 and for Daimler Trucks & Buses between 0.8 and 1.0. Daimler expects the reported free cash flow of the industrial business for 2021 to be below 2020’s figure, due to the payments in the context of the settlement with the US-regulators in civil-law proceedings relating to diesel emissions. The adjusted free cash flow of the industrial business is now expected to be in the vicinity of the prior-year level despite higher cash taxes.