Mercedes-Benz saw its share price climb after announcing second-quarter results that showed profit stabilisation, underpinned by cost reductions and better performances in certain business units, even as mounting competition from Chinese automakers weighed on its core market outlook.
Investors initially pushed the stock up by as much as 5.9% after the results were released, with the gain later narrowing to 2.9% by late morning trade.
The company reiterated profit guidance for its core car business and reported an adjusted return on sales of 4.0% for the second quarter, a figure above analyst expectations and comfortably inside the company’s stated 3% to 5% range.
Earnings and drivers
Mercedes’ second-quarter operating profit increased 22% to reach 1.5 billion despite revenues declining by 3%. Management attributed the improved operating result to reductions in administrative and research and development spending, as well as strong contributions from its financial services and vans units. The quarter also included a 131 million gain tied to the planned sale of leasing subsidiary Athlon.
Market context and competitive pressure
Despite the positive near-term profit update, the Stuttgart-based carmaker signalled that the competitive environment remains challenging. After suffering heavy losses to local manufacturers in China, Mercedes sees those same Chinese competitors now increasing their focus on exporting to Europe.
Second-quarter car sales in China fell sharply, down 30% in the period. That decline led Mercedes to abandon previous forecasts of stable car sales and group revenue; the company now anticipates a slight decline in both metrics compared with the prior year.
Outlook and margin dynamics
CFO Harald Wilhelm indicated that the full-year margin for Mercedes’ car business is currently expected to sit at the lower end of the company’s forecast range. Wilhelm noted that a shift toward higher sales in Europe of electric vehicles that are more expensive to produce is expected to weigh on profitability.
In response, management said German factories are in focus as part of an intensified effort to slim production costs, although the company declined to provide further specifics while talks continue with labour representatives.
At the same time, Mercedes is increasing production capacity in lower-cost Eastern European locations, including an expansion at its Kecskemet plant in Hungary and additional activity in Poland.
Management comments
"We must continue to work flat out to reduce costs so that we can remain competitive on the prices of our products," the companys CEO Ola Kaellenius said.
On the threat from Chinese entrants in Europe, he said their current focus appears to be on volume segments rather than the premium market occupied by Mercedes, but added: "But that is not a reason to sit back and be relaxed."
Implications
The quarter offered a degree of reassurance to investors that cost measures can offset revenue pressure in the near term, yet the firms comments underline an ongoing strategic recalibration in response to a more crowded competitive landscape and changing product mix. The company also highlighted currency information used for reporting: $1 = 0.8795 euros.