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April 29, 2020 2:15 PM, EDT

Daimler Profit Drops Amid Falling Demand

Freightliner trucksFreightliner trucks at a factory in Cleveland, N.C. (Freightliner Trucks via YouTube)

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Daimler AG reported net income plunged 92%, and revenue slipped 6% in the first quarter as the harsh effects of the novel coronavirus led to falling demand and temporary halts in production.

The company’s total unit sales — cars, trucks, buses and vans — fell 17% to 644,316 vehicles compared with 773,796 a year earlier.

For the quarter ended March 31, Daimler (reporting in euros) had the equivalent net income of $182 million, or 10 cents per diluted share, compared with $2.3 billion, or $2.13, a year earlier.

Revenue slipped to $40.3 billion compared with $43 billion a year earlier.

Chairman Ola Källenius

Källenius

“COVID-19 is a challenge for almost all companies, but if you are a big manufacturing company like Daimler with substantial fixed costs, of course, a dedicated workforce and extensive global operation, we face all sorts of complexities in an environment where sales are down so significantly and when we are unable to produce as normal,” Chairman Ola Källenius said.

The company decided to stop production in March and moved into cash-preservation and cost-management mode. Production has begun to gradually ramp back up.

Källenius continued: “This situation is certainly a top test for the company, its decision-making and its people, but if I look at the direction so far, and also the financial performance of where we have ended the [first] quarter with a positive result and controlled cash flow, I feel that we can be reasonably pleased with our reactions and focus.”

He said the fight against the pandemic must not be an excuse in the fight against climate change, and Daimler is continuing to invest in key technologies, including electrification and digitalization. “They are nonnegotiable elements of our future.” Källenius maintained multilateral agreements such as the Paris Climate Agreement are important.

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Daimler’s spending on research and development in the quarter was flat at $2.5 billion compared with the 2019 period, according to the Stuttgart, Germany-based company.

Net liquidity was $10 billion compared with $12.3 billion a year earlier.

Production fell 16% to 718,304 vehicles overall compared with 858,263 a year earlier.

Quarterly production at the Mercedes-Benz Cars and Vans unit, its largest segment, fell 16% to 609,553 compared with 725,692 a year earlier. Retail sales dropped 17% to 547,829 compared with 663,792 in the 2019 period.

Production at Daimler Trucks in the period dropped 19% to 102,253 compared with 125,599 a year earlier. Sales fell 20% to 92,468 compared with 115,920.

All major truck markets were weak in the first quarter. The North American market for heavy-duty trucks was already in a cyclical downturn at the beginning of the coronavirus crisis. Exacerbated by the worsening of the nation’s economic situation, U.S. truck sales fell 26% to 35,550 compared with 47,825 a year earlier. At the same time, U.S. orders for trucks in the quarter increased 12% to 27,042 compared with 24,246 a year earlier.

Daimler’s U.S. brands are Freightliner and Western Star. Freightliner sells in Class 4 through Class 8, while Western Star makes a heavy-duty truck.

Looking ahead, the company said, according to its assessments, major truck markets will develop “very unfavorably” this year as a result of the coronavirus pandemic.

Freightliner factory workers

Assembly line workers at a Freightliner factory in Cleveland, N.C. (Freightliner Trucks via YouTube)

Meanwhile, revenue at Daimler Mobility, its financial services unit, increased 3% to $7.7 billion compared with a year earlier.

Daimler said it is not possible to estimate at this time what further course the pandemic will take in its important sales and procurement markets. In addition, with the sharp drop in demand, there is an increased risk that the very low price of oil will remain, which would put additional pressure on oil-exporting countries. This could have negative effects on unit sales for Daimler segments in those countries.

RELATED: Daimler Truck AG, Volvo Group Plan Joint Venture on Hydrogen Fuel Systems

Daimler shares as of April 29 have lost 38% since the beginning of the year, about in line with the STOXX 600 Automobiles & Parts Index, according to Bloomberg News.

“We are now nearly at the end of April, and clearly, the pressure on the business remains significant,” Källenius said in the call. “It will be a difficult [second] quarter, but I feel we have made the right decisions so far and are well-placed to weather this storm. I certainly don’t want to sound triumphant at this stage. It is unclear how the COVID-19 situation will develop going forward, and we may face a prolonged downturn, and we need to prepare for this eventuality. If revenues are going to remain depressed for a protracted period, we may need to intensify our efforts. But I can assure you we remain intensely focused on managing our way through this period, and we will make the decisions necessary to ensure the company is well-positioned for high performance on the other side of this crisis.”

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