Daimler's distraction, sideshow and some earnings

Investors ignored non-earnings related noise in Daimler's Q2 report and focused on so-so results

Distraction and sideshow

Daimler’s report on an “excellent quarter” is somewhat overshadowed by a corporate distraction— reports suggesting its disclosure of alleged price collusion—and a sideshow—its revelation that it is thinking about establishing legally separate entities. The second bit of news probably hasn’t detained major investors for long—shares traded slightly in the red for most of Wednesday. It is after all immaterial to the extent that there are no plans for spin offs, though the move could be tax efficient. True, it’s not possible to absolutely rule-out that the board is gingerly circumnavigating towards some sort of adjustment of structure between the truck unit and the group. Investors have long appeared to value the company that makes Mercedes-Benz and Freightliner lorries at essentially zero. But Daimler’s finance director says there are no plans for disposals. And even possible legal separations are as yet just conceptual.

Nothing to see

The distraction of Daimler’s supposed whistle-blowing to cartel authorities looks more serious. Even on this though, it’s not clear whether the company is managing to speak with one voice yet – the board is meeting to discuss the matter on Wednesday, days after reports emerged. There’s no doubt that Der Spiegel’s article last Friday would be explosive if accurate. It said German carmakers colluded to fix the price of diesel emissions treatment systems.  There has been no word of a formal Bundeskartellamt probe yet, nor even any direct comment on the matter. The regulator did conclude a successful campaign in a small part of Germany’s auto parts industry this month, levying fines of €9.6m in total on three manufacturers, and exempting one participant as reward for helping to “uncover and provide evidence”. That news may have concentrated minds. Daimler’s (and VW’s) reported disclosure is worth noting. Again, officially, there’s nothing to see.

Still in 2nd place on the margin

The best takeaway from Daimler’s actual business of vehicle making in Q2 is that its Mercedes operating margin widened 380 basis points to 10.2% and due to organic reasons at that. Daimler cited sales of the E-Class limo, some 0f which contributed to a 28% rise in China. The raised outlook in trucks and vans, with annual operating profit, now seen back at levels of the previous financial year, is also of course welcome. Nevertheless, having crowned its comeback last year by retaking the accolade of biggest premium carmaker by volume, it remains unclear whether Daimler’s key unit, Mercedes-Benz, can sustain the same pace of 11% sales growth in 2017.  More importantly, despite Q2’s margin rise, margin stability at these levels is as yet unproven, particularly ahead of plans to “significantly increase unit sales again.”

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