Daimler profit rises in Q3 as Mercedes sales expand

FRANKURT (Bloomberg) -- Daimler reported a 21 percent increase in third-quarter profit as deliveries of the top-of-the line Mercedes-Benz S class more than doubled.

Operating profit rose to 2.79 billion euros ($3.53 billion) from 2.3 billion euros a year earlier, Daimler said in a statement today.

Profit at the Mercedes-Benz Cars division, which also includes the Smart brand, widened to 8.5 percent of revenue from 7.3 percent in the third quarter last year, the highest in more than two years.

Mercedes recorded its best-ever month for sales in the company's 88-year history in September, benefiting from new models and growing demand in China.

"Our strategy is paying off," CEO Dieter Zetsche said in the statement. "We are growing profitably and look to the future with optimism also beyond the full year."

Mercedes is adding the AMG GT sports car, which debuted at the Paris auto show, and more luxurious versions of the S class including a $1 million six-seat Pullman variant to bolster its high-end image. At the same time, the brand is expanding its lineup of more affordable models, such as the GLA compact sport-utility vehicle, as it seeks to topple BMW from the top spot in the luxury-car segment by the end of the decade.

"Mercedes-Benz has a fresh model lineup, which is giving the brand a lot of momentum," Frank Schwope, an analyst at NordLB in Hanover, Germany, said. "We’ll probably continue to see more profitable quarters through most of next year."

Group earnings before interest and tax (EBIT) were 3.73 billion euros ($4.72 billion), including a 1.01 billion-euro gain from the sale Daimler's 50 percent stake in Rolls-Royce Power Systems. EBIT at Mercedes-Benz Cars, which accounts for about 42 percent of the group total, increased 32 percent to 1.58 billion euros ($2 billion) in the third quarter.

Daimler Trucks posted a 17 percent rise in third-quarter EBIT from ongoing business as strong sales in the countries belonging to the North American Free Trade Agreement helped to offset a slump in Europe.

The company's third-quarter revenue advanced 10 percent to 33.1 billion euros.

2014 goal

Daimler stuck to its goal of significantly increasing 2014 operating profit, or earnings before interest and taxes from ongoing business, from last year’s 7.9 billion euros on "significant" gains in vehicle deliveries and revenue.

The company, which is also the world’s biggest truckmaker, today forecast industrial cash flow of significantly more than last year’s 3.2 billion euros.

Mercedes deliveries rose 13 percent to 1.2 million vehicles in the first nine months, faster than at BMW and No. 2-ranked Audi. Sales in the third quarter rose 9 percent to 431,000 vehicles, the highest ever for the company.

In the U.S., Daimler sales through September -- including Smart cars and Sprinter vans -- rose 9 percent to 259,076 vehicles. The total U.S. market is up 6 percent. Mercedes is locked in a close race with BMW for the U.S. luxury title with sales rising 8 percent to 233,211 vehicles through nine months. 

Daimler is the first of the German premium auto makers, to release third-quarter results. BMW is scheduled to report third-quarter earnings on Nov. 4, while Audi parent Volkswagen will release figures Oct. 30.

In previous quarters, the profitability of Mercedes passenger cars has lagged that of peers. In the second quarter, for example, BMW's quarterly automotive EBIT margin, the best profitability gauge for peer comparison, came in at 11.7 percent, exceeding the 7.9 percent achieved by Mercedes-Benz, and 9.9 percent by Audi.

Global forecast

Daimler today said it now expected world-wide demand for passenger cars to grow around 3 percent, in what amounts to a further downward revision of expectations. Earlier this month, Zetsche had already cut his forecast for global car market growth this year to 3-4 percent from 4-5 percent, as the Ukraine-Russia crisis dented demand and growth slowed in markets such as Brazil and Argentina.

Alongside the investment in new vehicles, Daimler is looking to cut operating costs at Mercedes by about 2 billion euros and expects 80 percent to 90 percent of those savings to be achieved by the end of 2014, the company said today. The Fit for Leadership program is part of efforts to achieve a long-delayed goal of lifting the car division’s margins to 10 percent.

The carmaker said on Oct. 21 that it sold its stake of about 4 percent in California-based electric-car producer Tesla Motors in a deal that will generate about $780 million to bolster Daimler’s operations.

The disposal ends a five-year equity tie-up between the manufacturers, as Tesla evolves into a stronger competitor for Mercedes. Some cooperation will continue, with Tesla supplying powertrain components to the Daimler brand.

Reuters contributed to this report