Release Date: August 01, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Daimler Truck Holding AG (DTRUY, Financial) achieved an adjusted group EBIT of EUR1.2 billion and an adjusted return on sales of 9.3% for the industrial business.
- Trucks North America reported record margins of 14.5%, showcasing strong performance.
- Daimler Buses achieved a return on sales of 9.1%, reflecting excellent performance in a challenging market.
- Sales of zero-emission vehicles continue to grow, with significant progress in battery-electric and hydrogen-powered trucks.
- The rating agency Standard & Poor's Global Ratings raised its long-term rating for Daimler Truck from BBB-plus to A-minus, underlining the company's financial strength.
Negative Points
- A one-time non-cash impairment of EUR120 million from the Chinese joint venture, BFDA, impacted the second quarter results.
- Unit sales decreased by 15% compared to the prior year, with significant declines in Europe and Asia.
- Free cash flow for the industrial business was negative at minus EUR285 million.
- Mercedes-Benz Trucks reported a decline in return on sales to 6.5%, which does not meet the company's expectations.
- The overall Heavy truck market in Europe is expected to decrease by 12% to 24% compared to 2023, with Central European markets, especially Germany, being over-proportionately affected.
Q & A Highlights
Q: Can you highlight the measures being implemented to address the fixed and variable cost issues at Mercedes trucks?
A: Martin Daum, CEO: The key is to adjust to lower production volumes, especially in Europe. This might involve short-term work and cutting variable costs in our factories. Eva Scherer, CFO: We are also implementing spending stops and hiring freezes to increase profitability in the second half of the year. Structural measures will take more time to define and implement.
Q: What gives you confidence in the visibility and reliability of the third-quarter guidance?
A: Martin Daum, CEO: Despite the volatility, we strive for transparency and accuracy. The second quarter had production hiccups, but we are confident in our third-quarter numbers. We have a strong commitment from everyone in the company to achieve the projected outcomes.
Q: Can you provide more color on the reasons behind the margin weakness in Q2 for Mercedes-Benz trucks?
A: Eva Scherer, CFO: The margin weakness was primarily due to a negative mix effect from lower sales volumes in Germany and higher sales in Latin America, which couldn't compensate for the shortfall. There were no major extra costs involved. We have reduced fixed costs by about 10% since 2019, but spin-off-related costs have offset these savings.
Q: What explains the lower implied margin for Daimler Trucks North America in the second half of the year?
A: Martin Daum, CEO: The lower margin is due to an accidental product mix, including a higher mix of medium-duty trucks and Mexican trucks. Despite this, we are still on track for a record year. The market is normalizing, and we are cautiously optimistic for the end of the year.
Q: What are you seeing on the front line with your sales force and customers across the globe?
A: Martin Daum, CEO: It's a mixed picture. Daimler Buses is performing extremely well, North America is normalizing, and Asia is showing signs of stabilization. Europe remains weak, especially in Germany, but we expect a rebound at some point. China continues to be a challenging market.
Q: How do you see pricing trends for new orders in Europe, and what is your margin outlook for Q3?
A: Martin Daum, CEO: Pricing remains stable, and we are not seeing significant price pressure. We aim for a 6% margin in Q3, despite lower production volumes. We are focusing on cost-cutting measures and running a tight ship to achieve this target.
Q: How quickly can you cut costs in the US if the market situation changes?
A: Martin Daum, CEO: We can cut costs much faster in the US compared to Europe. We have systems in place to adjust production costs quickly and have demonstrated this capability in the past.
Q: Can you provide more details on the free cash flow outlook for the second half of the year?
A: Eva Scherer, CFO: We expect to be on the same level as the prior year for the full year. We are focusing on free cash flow generation and cost management in the second half. Historically, our cash flow leans more towards the end of the year, giving us confidence in our guidance.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
