July 23, 2014 at 6:34 am

Daimler's plan helps improve profit at Mercedes

Daimler AG’s plan to restore its Mercedes-Benz brand to the top of the luxury-car market gained traction in the second quarter as surging deliveries of the flagship S-Class sedan propelled a jump in profitability.

Earnings before interest and taxes at Mercedes-Benz Cars, which also includes the Smart urban-vehicle marque, widened to 7.9 percent of revenue from 6.4 percent a year earlier, Daimler said Wednesday. Mercedes is attracting customers with a new S-Class version that reached showrooms a year ago and additional variants that will culminate in 2015 with the $1 million Pullman limousine featuring three rows of seats.

Daimler Chief Executive Officer Dieter Zetsche laid out a strategy for Mercedes to retake the worldwide lead in premium- vehicle sales by the end of the decade after the brand fell to third place in 2011, ranking behind German manufacturers BMW and Audi. Zetsche’s plan also includes making Mercedes the most profitable luxury-auto producer, with a margin target of 10 percent.

“Daimler is delivering,” said Frank Biller, an analyst at LBBW in Stuttgart, Germany. “The new models currently allow Mercedes to close the gap to the competition. We see Audi, BMW and Mercedes approximately at eye-level” over the long term.

Daimler stock jumped the most in three months after the Stuttgart-based carmaker said second-quarter Ebit from ongoing business rose 12 percent to 2.46 billion euros ($3.32 billion) while revenue increased 6.2 percent. Daimler stuck to targets of “significantly” increasing sales, deliveries and ongoing Ebit this year, and achieving 4 billion euros in group earnings improvements from efficiency measures by 2015.

“Our strategy is paying off,” Zetsche told journalists on a conference call. “We’re growing and, what’s more, we’re growing profitably.”

First-half deliveries of the top-of-the-line S-Class more than doubled, while the Mercedes compact range, which includes recently introduced models such as the CLA four-door coupe and GLA sport-utility vehicle, won 24 percent more buyers, Daimler said earlier this month. Even so, with sales of 783,500 autos in the period, Mercedes remained almost 103,000 deliveries behind Munich-based Bayerische Motoren Werke AG’s namesake brand.

Mercedes plans to employ about 7,600 temporary workers during the traditional summer vacation period to maintain production and keep to delivery schedules, Daimler said today. The carmaker is “very satisfied” with vehicle pricing, and S- Class assembly lines are working over capacity, Zetsche said.

Daimler rose as much as 2.6 percent, the steepest intraday gain since April 17, and was trading up 1.4 percent at 67.01 euros as of 11:49 a.m. in Frankfurt. The stock has gained 6.6 percent this year, valuing the company at 71.7 billion euros.

The CEO has stopped setting any deadline for Mercedes to reach the 10 percent margin after determining in late 2012 that the goal couldn’t be reached by 2013. That was already three years after the original target date, when growth was disrupted by the worldwide recession.

BMW, which publishes second-quarter earnings on Aug. 5, reported a full-year 9.4 percent margin from carmaking in 2013, the top end of a target corridor. Audi, whose owner Volkswagen AG is scheduled to release quarterly figures on July 31, posted an operating margin of 10.1 percent last year, exceeding its long-term range of 8 percent to 10 percent.

Mercedes lagged behind the two competitors in profitability in the first three months of 2014 as well as all of last year.

The brand “is still a long way from” its 10 percent target, Max Warburton, an analyst at Sanford C. Bernstein Ltd. in Singapore, wrote in a report to clients. “We remain of the view” that Mercedes “will struggle to close the gap fully with BMW and Audi.”