Mercedes Posts First Loss in over a Decade

DaimlerChrysler's first-quarter operating profit fell 59 percent but still beat analyst expectations, even though its ailing Smart minicar brand dragged former cash cow Mercedes Car Group to an operating loss

Mercedes Posts First Loss in over a Decade

The world's fifth-biggest carmaker reiterated on Thursday a forecast for slightly higher 2005 operating profit, excluding well-flagged restructuring costs of up to 1.2 billion euros ($1.55 billion) for Smart, set to break even only in 2007.

DaimlerChrysler posted overall operating profit of 628 million euros. Heeding warnings that first-half results would be weak, 18 analysts polled by Reuters had on average forecast operating profit down 79 percent to 323 million euros.

Net profit dropped 30 percent to 288 million euros on revenues of 31.74 billion, down 2 percent.

Mercedes Car Group, the company's luxury division, plunged to an operating loss of 954 million euros - its first red ink since an annual loss in 1993 - from a profit of 639 million.

"The (size of the) loss at Mercedes was a still a shock, even if that's happened before. Still there's probably a bit of relief out there since some people had expected a profit warning," said Philippe Houchois at JP Morgan.

"Daimler was cautious on all sorts of issues like currencies and raw materials but these are all issues we already know. The story is still on track," he said, keeping the stock "overweight."

Mercedes in Red

Mercedes was stung by 800 million in restructuring costs for Smart, the urban chic minicar that has lost money since the brand made its debut in 1998. Smart has scaled back ambitions after losing nearly 4,000 euros on each car sold last year.

Nearly 500 million euros spent on fixing quality problems at Mercedes-Benz, which last month launched its biggest-ever recall, also hit profits at the division, which is labouring under a strong euro and the costs of launching new models.

The profit collapse at Mercedes has prompted a new efficiency drive that aims to boost earnings at the division by more than 3 billion euros and restore an operating margin of 7 percent by 2007, goals that it repeated on Thursday.

"The division expects the turning point in profitability as soon as in the second quarter this year and a further substantial improvement in the third quarter," the group said.

Chief Financial Officer Bodo Uebber told a conference call that things were looking up as Mercedes rolls out new models, its provisions for addressing quality issues go down and the efficiency drive codenamed CORE starts bearing fruit.

U.S. auto arm Chrysler, where hot products such as the boldly designed Chrysler 300 sedan and minivans with stow-flat rear seats have fuelled growth, saw operating profits fall to 252 million euros from 303 million, lagging market expectations.

This was primarily the result of lower factory unit sales and the euro's rise against the dollar, it said.

Both divisions were seen boosting unit sales this year.

Uebber dismissed talk that high U.S. petrol prices would crimp sales of big pickup trucks and sport utility vehicles.

"There is no impact. There is a fierce competition in the U.S. in that field, but...from our analysis and from our point of view that does not reflect the higher (gas) prices," he said.

The group's market-leading commercial vehicles business boosted first-quarter operating profit to 714 million helped by a global boom for trucks and 276 million euros in added income from a compensation payment from Asian partner Mitsubishi.

Uebber said the North American truck market remained strong and Europe was seeing lower growth but had not yet peaked.

DaimlerChrysler stock has lagged the DJ Stoxx European car sector index by around 11 percent so far in 2005.

It trades at over 11 times estimated 2005 earnings, a premium to arch-rival BMW's 10 times, according to Reuters Knowledge estimates. But BMW trades at a premium based on estimated 2006 earnings.

shares
comments
Toyota Withdraw Ralf Appeal

Previous article

Toyota Withdraw Ralf Appeal

Next article

Q & A with Sauber's Willy Rampf

Q & A with Sauber's Willy Rampf
Load comments

About this article

Series Formula 1
Teams Mercedes
Author Michael Shields
How 2021's midfielders have taken lessons from F1's top teams Plus

How 2021's midfielders have taken lessons from F1's top teams

Formula 1’s latest Imola adventure turned into an expensive trip for many teams due to several crashes throughout the weekend. While balancing the books is an added factor in 2021 with the cost cap, a few midfield teams have cashed in early on development investments

Emilia Romagna Grand Prix Driver Ratings Plus

Emilia Romagna Grand Prix Driver Ratings

A frantic wet race at Imola produced plenty of excitement and drama as drivers scrabbled for grip. Amid the hatful of mistakes and incidents that ensued, who kept their noses cleanest?

How the Emilia Romagna GP result hinged on three crucial saves Plus

How the Emilia Romagna GP result hinged on three crucial saves

Rain before the start of the Emilia Romagna Grand Prix promised to spice up the action, and the race certainly delivered on that. Max Verstappen got the best launch to win from Lewis Hamilton, but both got away with mistakes that could have had serious consequences

Formula 1
Apr 19, 2021
The back-bedroom world-beater that began a new F1 era Plus

The back-bedroom world-beater that began a new F1 era

The first in a line of world beaters was designed in a back bedroom and then constructed in a shed. STUART CODLING recalls the Tyrrell 001

Formula 1
Apr 18, 2021
The clues Hamilton’s F1 contract afterthought gives to his future Plus

The clues Hamilton’s F1 contract afterthought gives to his future

The Formula 1 world reacted with surprise when it learned Lewis Hamilton’s long-awaited new Mercedes deal guarantees his presence on the grid only until the end of 2021. Both parties claimed publicly they were happy with the arrangement but, asks MARK GALLAGHER, is there more to it than that?

Formula 1
Apr 17, 2021
How a harshly ejected Red Bull star has been hooked by racing again Plus

How a harshly ejected Red Bull star has been hooked by racing again

Driver-turned-DJ Jaime Alguersuari lost his love for motorsport when he was booted out of Formula 1 just as he was starting to polish his rough edges. Having drifted from category to category then turned his back on racing altogether in 2015, he’s come full circle and is planning a return in karts for fun

Formula 1
Apr 17, 2021
Why Mercedes isn't confident it's really ahead of Red Bull at Imola Plus

Why Mercedes isn't confident it's really ahead of Red Bull at Imola

While Mercedes struck back against Red Bull by topping the times at Imola on Friday ahead of the Emilia Romagna Grand Prix, the overall picture remains incredibly close. Despite having a possible edge this weekend, the reigning Formula 1 world champion squad is not taking anything for granted...

Formula 1
Apr 16, 2021
What Mercedes must do to keep its F1 title challenge on track Plus

What Mercedes must do to keep its F1 title challenge on track

Mercedes may find itself leading the drivers' and constructors' standings after Lewis Hamilton's victory in the Bahrain Grand Prix, but it is well-aware that it came against the odds, with Red Bull clearly ahead on pace. Here's what the Brackley team must do to avoid its crown slipping

Formula 1
Apr 16, 2021