From the FT's Lex blog
Let them drive Mercs.
Europe may be teetering on the brink of recession and the phenomenal growth in Chinese demand for premium vehicles appears set to slow, but Stuttgart-based Daimler AG gave investors the smoothest of rides on Thursday.
Results from its core Mercedes-Benz car division were right on line – with strong unit sales in the U.S. and China boosting 2011 revenue by 7 per cent to €57-billion ($73.5-billion).
Margins at the earnings-before-interest-and-tax level rose from 8.7 to 9 per cent, edging toward the 10-per-cent target.
The truck business improved return on sales more sharply from 5.5 per cent in 2010, to 6.5 per cent on revenue up by a fifth.
Helped by a bigger-than-expected dividend increase, the share price glided 4 per cent higher. That takes the gain this year to more than 30 per cent – raising the question of whether such a substantial rerating is merited.
The company had billed 2012 as a "transition year" as it revives its small-car lineup. This, coupled with the economic uncertainties, meant that investors expected earnings to decline. Now the company hopes to repeat 2011's result.
Meanwhile, research and development costs, which rose 16 per cent to €5.6-billion in 2011, are peaking: Spending in 2012 and 2013 over all should be €10.9-billion.
Still, there are risks – notably on the European truck front and in terms of Chinese luxury vehicle demand. Investors may also worry about Daimler's relatively low labour productivity rates, which are well below those at Volkswagen's Audi and rival BMW, according to Deutsche Bank.
Daimler shares trade at a forward multiple of about nine times, compared with about 10 for BMW. Daimler's underperformance over the past year had been overdone, but a discount is justified, not least because of those trucks and productivity levels.
Still, it's a nicer ride than it was.