Daimler lifts 2020 profit outlook as Mercedes-Benz margins rebound

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FRANKFURT (Oct 23): German automaker Daimler raised its 2020 profit outlook today as a 24% jump in demand for luxury cars in China in the third quarter (3Q), a new record, helped turn around margins at its Mercedes-Benz car division.

Benefitting from improved pricing and a fall in fixed costs, adjusted return on sales at its Mercedes-Benz Cars & Vans division rose to 9.4%, up from 7% a year earlier and rebounding from minus 1.5% in 2Q.

The car and truck maker said it now expects full-year earnings before interest and taxes (EBIT) to reach prior-year levels, compared with its previous expectation of a drop in earnings.

Daimler said it sold 45,000 hybrid and electric cars in 3Q and expects sales to rise in 4Q. These cars delivered a positive contribution to margin and would allow the carmaker to meet European Union emissions goals.

"We appreciate the fact Mercedes can deliver very high margins whilst selling an increasing number of electrified vehicles (EVs). This should calm down some of the fears concerning alleged material profitability erosion from EVs," Arndt Ellinghorst, analyst at Bernstein Research, said today.

The company's adjusted EBIT rose to €3.48 billion in the quarter, up from €3.14 billion a year earlier.

The results helped lift Daimler shares 2% in early trading, outperforming Germany's blue-chip DAX index, which was 0.1% lower.

However, quarterly deliveries of Mercedes Benz Cars and Vans were down 4% as the Covid-19 pandemic continued to weigh on demand, prompting Daimler to reiterate that it expects group unit sales and revenue in 2020 to be significantly lower than the previous year.

Daimler said its outlook is based on the premise that conditions will continue to normalise and that no further setbacks occur as a result of the pandemic.