Daimler Expected To Swing To Profit As Luxury Car Sales Surge

Daimler AG's (DAI.XE) fourth-quarter earnings are expected to surge year-on-year, driven by strong sales increases at its core Mercedes-Benz brand, particularly in China and North America, as well as a recovery in major truck markets.

The car and truck maker, which is due to release earnings Feb 16, is expected to swing to net profit of EUR1.4 billion from a EUR352 million loss in the fourth quarter of 2009, according to a Dow Jones Newswires survey of 10 analysts.

The German company's closely-watched earnings before interest and tax, or EBIT, is expected to be EUR2.06 billion, up from EUR448 million in 2009, with fourth-quarter revenue expected to increase by 20% year-on-year to EUR25.6 billion from EUR21.2 billion.

Investors will focus on the Stuttgart-based firm's outlook for 2011 as well as the dividend for 2010. Last year, Daimler skipped its dividend payment for 2009 after it posted a net loss of EUR2.64 billion triggered by a steep industry downturn.

Demand for new cars and trucks contracted sharply in 2009 amid a lackluster economy and financial market woes, but the luxury-car segment staged a faster-than-expected comeback last year, driven by a growing number of affluent Chinese customers and U.S. customers returning to showrooms.

Mercedes-Benz's fourth quarter was the best quarter in the brand's history in terms of global sales volume, with deliveries of 313,700 vehicles, up 14% on the year. Full-year sales were up 15% on the year, at 1.17 million vehicles, making it the world's second-biggest premium car maker after German peer BMW AG (BMW.XE) and ahead of Volkswagen AG's (VOW.XE) Audi marque.

Analysts expect the Mercedes-Benz Cars division, which comprises the Mercedes-Benz, Smart and Maybach brands, to more than double fourth-quarter EBIT to EUR1.3 billion from EUR608 million in the prior-year period.

Daimler's truck unit, the world's largest producer of commercial vehicles by revenue, is anticipated to swing to a EUR419 million profit after a EUR224 million loss last year.

Daimler lifted its full-year EBIT target in October after reporting a sharp jump in third-quarter earnings. It expects full-year EBIT to come in at more than EUR7 billion in 2010, up from a previous estimate of EUR6 billion.

Analysts, however, expect Daimler to easily surpass this target, with full-year EBIT anticipated to come in at EUR7.77 billion.

Thanks to Mercedes-Benz, Daimler staged a powerful comeback last year, but Chief Executive Dieter Zetsche is set to face some critical questions on Wednesday about the future strategy of the company's troubled Smart mini-car brand. Smart racked up huge losses during the last decade, which led Daimler to cut the brand's line-up down to just one model.

But the tiny two-seater still reported sluggish sales last year as it failed to capitalize from a broad trend towards smaller and more fuel-efficient vehicles. Sales at Smart slumped 17% in 2010 to only 97,500 vehicles.

Daimler last year entered a cooperation agreement with French car maker Renault SA (RNO.FR) and its Japanese alliance partner Nissan Motor Co. (7201.TO) to reap economies of scale and improve the profitability of its small and compact cars, which has been a long-standing concern for investors.

Carlos Ghosn, the CEO of both Renault and Nissan, said last week there is "no limit" to the small-car cooperation with Daimler.

"There are a lot of other ideas," Ghosn told a press conference. These could include collaboration in electric vehicles, logistics, premium vehicles and transmissions, he said. The cooperation pact is cemented by 3.1% cross-shareholdings.

Widening the cooperation with the two mass-market manufacturers to reap more cost synergies, however, could become a delicate issue for CEO Zetsche as memories among investors and staff of the company's ill-fated tie-up with Chrysler LLC are still fresh.

-By Christoph Rauwald, Dow Jones Newswires; +49 69 29 725 512; christoph.rauwald@dowjones.com

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