Mercedes-Benz rebound propels DaimlerChrysler profit

UPDATED: 7/27/06 10:25 AM

STUTTGART -- A rebound at the flagship Mercedes-Benz brand helped DaimlerChrysler boost second-quarter operating profit by a forecast-beating 11 percent despite a slump at the Chrysler group.

The world's fifth-biggest carmaker reiterated on Thursday that group operating profit would exceed $7.64 billion (6 billion euros) in 2006, up from just under 5.2 billion euros in 2005, even though the Chrysler group would slide into a third-quarter loss before recovering.

Group operating profit in the second quarter rose to $2.37 billion (1.86 billion euros) as results at the premium division Mercedes-Benz topped even the highest estimate in a Reuters poll.

"Mercedes performed clearly better than expected and is well on its way," said analyst Stephan Droxner at German bank LBBW.

"The new (Mercedes-Benz) products are getting traction and they have the quality problems under control," added Ferdinand Dudenhoeffer, who heads Gelsenkirchen University's automotive studies center.

Operating profit at Mercedes Car Group -- which also includes minicar brand Smart and ultra-luxury brand Maybach -- leaped to $1.03 billion (807 million euros) from just $15.3 million (12 million euros) in the year-ago quarter, helped by brisk sales growth thanks to new models including the top-line S-class sedan.

DaimlerChrysler said it expected earnings at the premium arm to keep improving in the quarters ahead and Mercedes remained on track to generate a 7 percent return on sales next year.

The Chrysler group, swept up in a U.S. price war and battling excess inventory, saw operating profit in the quarter plunge to $64.9 million (51 million euros) from $692.4 million (544 million euros) a year ago, extending the first-quarter's earnings retreat.

It said it still expected full-year deliveries at the Chrysler group to hold roughly at last year's level thanks to a new model offensive in the second half.


High dealer inventories will make the Chrysler group reduce production and shipments to dealers in the third quarter, when it will also retool some plants to make new models.

Launch costs for eight new models, including a new version of the Jeep Wrangler, the Dodge Nitro SUV and the Chrysler Sebring sedan, will also weigh on earnings, it said.

"The division therefore anticipates a third-quarter operating loss of up to 0.5 billion euros ($636.4 million at current exchange rates). We then expect positive earnings once again in the fourth quarter as a result of the new models to be launched in the second half of the year," it said, adding that it planned for a positive result in the full year.

Group net profit rose to $2.30 billion (1.81 billion euros) in the quarter from $938.2 million (737 million euros) a year ago, on revenues that remained roughly stable at $49.14 billion (38.6 billion euros).

Net profit was boosted by roughly $1.02 billion (800 million euros) from revaluing derivatives contracts related to shares in aerospace group EADS.

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