Daimler Reports Ugly Q2 2020 Results as Sales Drop -34%

Ken Zino of AutoInformed.com on COVID-19 and Daimler sales

Hit be a truck, err, virus.

Daimler AG (ticker symbol: DAI) today reported its results for Q2 ending 30June 30 2020. The COVID pandemic or the Grim Reaper saw a decline in demand for cars, vans, trucks and buses. Group total sales decreased by -34% to 541,800 cars and commercial vehicles (Q2 2019: 821,700). Revenue slipped significantly by -29% to €30.2 billion (Q2 2019: €42.7 billion). EBIT was minus -€1,682 million (Q2 2019: minus -€1,558 million). Adjusted EBIT was -€708 million (Q2 2019: plus €2,447 million).

Ken Zino of AutoInformed.com on Daimler Results Q2 2020 During Covid

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While the worldwide effects of the pandemic led to a significant decrease in earnings at Mercedes-Benz Cars & Vans, Daimler Trucks & Buses and Daimler Mobility, implemented cost-cutting measures countered the negative effects. Nonetheless, Net Loss was a breathtaking -€1,906 million (Q2 2019: net loss of -€1,242 million). Industrial free cash flow was positive in the quarter.

Management said the Covid-19 pandemic and the related countermeasures brought economic activity worldwide to a temporary standstill. Daimler countered the drop in demand by suspending production in March, April and May, and by introducing short-time work. Expenditures were reduced and investments focused on the most critical future projects. Working capital was managed with inventory reduction.

These measures were somewhat successful in Daimler’s view: At the end of the Q2, the net liquidity of the industrial business was €9.5 billion (end of Q1 2020: €9.3 billion). The free cash flow of the industrial business was €685 million (Q2 2019: -€1,302 million). The adjusted free cash flow of the industrial business, which was still influenced by high upfront investments in future products, was €778 million (Q2 2019:  €1,208 million).

Sales of the Mercedes-Benz Cars & Vans division decreased by -30% to 480,800 vehicles in the Q2 (Q2 2019: 686,800). Adjusted EBIT, reflecting the underlying business, was minus €284 million (Q2 2019: plus €1,148 million) and adjusted return on sales was -1.5% (Q2 2019: plus 4.5%).

A favorable model mix, driven particularly by the success of the newest products, contributed positively to profitability. Restructuring expenses for capacity adjustments in the global production network, e.g. in Hambach, Tuscaloosa and Aguascalientes (€687 million), and the initiated personnel cost reduction program (€101 million), had a negative impact. Both initiatives will reduce fixed costs in the medium and long term.

Ken Zino of AutoInformed.com on Daimler Results Q2 2020 Truck and Mobility

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The Daimler Trucks & Buses division showed a decrease in unit sales of 55% to 61,000 vehicles in the Q2 (Q2 2019: 134,900). Adjusted EBIT amounted to -€747 million (Q2 2019: plus €834 million) and adjusted return on sales was -12.0% (Q2 2019: plus 7.2%). Declining volumes had a strong impact on earnings while restructuring activities, which will improve long-term competitiveness, helped reduce fixed costs significantly. Encouragingly, order intake is now developing positively in nearly all core regions.

At Daimler Mobility, new business decreased by -24% to €14.0 billion in the Q2 (Q2 2019: €18.4 billion). Adjusted EBIT amounted to €313 million (Q2 2019: €483 million) and adjusted return on equity was 8.6% (Q2 2019: 14.0%). Due to the economic slowdown in connection with the Covid-19 pandemic, higher credit loss expenses had a negative impact on EBIT. Furthermore, EBIT was reduced by expenses (€105 million) in connection with the adjustment of the YOUR NOW Group.

The Covid-19 pandemic will continue to have a strong impact on developments during the rest of the year. From today’s perspective, a considerable decline in global economic output must be expected for full-year 2020. Daimler assumes that the pandemic-related decrease in unit sales will not be offset in the remainder of this year. Therefore, efficiency and capacity measures are to be intensified.

Assuming that the economic recovery continues in the second half of the year and that there is no new major wave of Covid-19 infections in our key sales markets, Daimler expects both Group EBIT and the free cash flow of the industrial business to be positive in 2020, but lower than in the previous year. The free cash flow of the industrial business does not consider possible expenses in connection with legal and governmental proceedings. As EBIT of the Mercedes-Benz Cars & Vans division was burdened by substantial special effects in 2019, EBIT is expected to be above the prior-year level despite the effects of the pandemic. Daimler Mobility’s adjusted return on equity is not expected to reach the level of the prior year.

About Ken Zino

Ken Zino is an auto industry veteran with global experience in print, broadcast and electronic media. He has auto testing, marketing, public relations and communications expertise garnered while working in Asia, Europe and the U.S.
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