Daimler AGÂ (DDAIF, Financial)(MIL:DAI, Financial), the $81.2 billion German carmaker, reported its fiscal 2016 results on Valentine’s Day. It reported 2.5% sales growth to 153.3 billion euros ($165.36 billion) and 1.2% profit growth to 8.53 billion euros, maintaining a profit margin of 5.6% compared to 2015.
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“In 2016, Daimler has set new records for unit sales, revenue and earnings. But what is just as important is that in the best year in our company’s history so far, we also initiated the biggest-ever transformation at Daimler.
“We have set our course in the direction of electric mobility and are establishing a new culture of cooperation together with our workforce. Those who wish to shape the future of the automobile at the forefront of the automotive industry need both financial strength and innovative skill. In 2016, we demonstrated that the combination of these Page 2 two factors at Daimler is stronger now than ever before.” – Dr. Dieter Zetsche, chairman of the board of Management of Daimler AG and head of Mercedes-Benz Cars.
Daimler ADR shares reacted with a -0.03% change by market close.
Outlook
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“On the basis of the expected market developments and the planning of the divisions, Daimler assumes that Group EBIT will increase again slightly in 2017.”
“We want to increase our total unit sales in the automotive divisions in total. And our financial and mobility services also target further growth,”
“We are on a path of stable growth, along which we will systematically continue.” – Dr. Dieter Zetsche
Valuations
Daimler ADR's shares trade at good discount compared to its peers. According to GuruFocus data, Daimler had trailing price-earnings (P/E) ratio of 8.9 times vs. industry median 18 times, price-book (P/B) value of 1.31 times vs. industry median 1.7 times and price-sales (P/S) ratio of 0.49 times vs. industry median of 0.8 times.
Daimler shares also had trailing dividend yield of 4.9% with a 41% payout ratio.
Daimler would also have forward sales and P/E ratio of 0.48 times and 8.2 times using average sales and earnings per share expected in fiscal 2017 from Reuters data.
Total returns
Daimler ADR shares failed to outperform the broader Standard & Poor's 500 index in recent years. Daimler provided an 8.3% total return in the past year compared to the index’s 5.2% and 8.6% vs. 13.3% in the past five years.
Daimler AG
Daimler AG is the parent company of the Daimler Group and is domiciled in Stuttgart, Germany.
The main business of Daimler AG is the development, production and distribution of cars, trucks and vans in Germany and the management of the Daimler Group.
Meanwhile, Daimler Group or Daimler started 130 years ago with the founders Gottlieb Daimler and Carl Benz, the inventors of the automobile. In addition to providing mobility and financial services, Daimler is a globally leading vehicle manufacturer that offers an unparalleled range of premium automobiles, trucks, vans and buses.
According to filings, Daimler (business) is active in nearly all the countries of the world with more than 8,500 sales centers worldwide as of 2016.
(Annual Report, Daimler)
In 2016, Daimler generated 26% or 39.9 billion euros from Europe, excluding Germany; 25.6% from the U.S.; 12.8% from Asia, excluding China; other countries not mentioned generated the remainder.
The group’s five divisions contributed to this total as follows: Mercedes-Benz Cars, Daimler Trucks, Mercedes-Benz Vans, Daimler Buses and Daimler Financial Services.
(Annual Report)
Mercedes-Benz Cars
The products supplied by the Mercedes-Benz Cars division comprise a broad spectrum of premium vehicles of the Mercedes-Benz brand, its Mercedes-AMG high-performance brand and its Mercedes-Maybach luxury brand.
These vehicles range from the compact models of the A-Class and B-Class to a highly varied program of sport utility vehicles, roadsters, coupes and convertibles and S-Class luxury sedans.
The portfolio is rounded out by the Mercedes me subbrand and the high-quality small cars of the smart brand. Furthermore, Daimler launched the new EQ brand in 2016 for all activities connected with electric mobility.
Mercedes-Benz Cars generated 75% or 89.3 billion euros in sales in 2016 and 56% after adjustments. The segment grew 6.5% from the prior year and delivered earnings before interest (EBIT) margin of 9.1% vs. 9.5% in 2015.
*Annual report: EBIT, the indicator of operating performance, comprises earnings before interest income and corporate income taxes.
Daimler expects the Mercedes-Benz Cars division to deliver EBIT performance significantly above the prior-year level in fiscal 2017.
(Annual Report)
Daimler Trucks
Daimler is the biggest globally active manufacturer of trucks above 6 metric tons gross vehicle weight.
The Daimler Trucks segment develops and produces vehicles in a global network under the brands Mercedes-Benz, Freightliner, Western Star, FUSO and BharatBenz.
Daimler also has a joint venture in China, Beijing Foton Daimler Automotive Co. Ltd., with Beiqi Foton Motor Co. Ltd., and has been producing trucks under the Auman brand name since 2012.
Daimler Trucks’ product range includes light, medium and heavy-duty trucks for local and long-distance deliveries and construction sites as well as special vehicles used mainly in municipal applications.
Daimler Trucks generated 28% or 33.2 billion euros in total Daimler sales in 2016 or 21% after adjustments. The segment delivered 11.7% lower sales in 2016 compared to 2015.
Daimler explained that the disappointing truck sales performance was “primarily due to the very weak condition of some major truck markets, which we had not anticipated at the beginning of the year.”
Further, the truck division delivered an EBIT margin of 5.9% vs. 6.9% in 2015. Daimler expects this segment to deliver slightly below the prior-year level.
(Annual Report)
Mercedes-Benz Vans
Mercedes-Benz Vans is a global supplier of a complete range of vans and associated services.
The division’s product range in the segment for commercial vans comprises the Sprinter large van, the Vito midsize van (marketed as the “Metris” in the U.S.) and the Mercedes-Benz Citan urban delivery van.
The range of vans in the private-customer segment consists of the V-Class multipurpose vehicle (MPV) and the Marco Polo camper vans and recreational vehicles.
Daimler’s Vans segment also has partnerships in China, France and Russia.
In 2016, Vans sales generated 11% or 12.8 billion euros in total Daimler sales or 8% after adjustments. Vans sales grew 11.9% for the period.
Further, Vans delivered an EBIT margin of 9.1% vs. 7.7% in 2015. Daimler expects the Mercedes-Benz Vans to deliver significantly below the prior-year level in fiscal 2017.
(Annual Report)
Daimler Buses
The Daimler Buses division with its brands Mercedes-Benz and Setra is the undisputed industry leader for buses above 8 metric tons in its traditional core markets in the EU30 (European Union, Switzerland and Norway) region, Brazil, Turkey, Argentina and Mexico.
The division’s product range comprises city and intercity buses, coaches and bus chassis.
In 2016, Daimler Buses generated 3% or 4.2 billion euros in total sales or 3% after adjustments. Bus sales grew 1.5% in 2016.
The bus division delivered an EBIT margin of 6% vs. 5.2% in 2015. Daimler Buses are expected to deliver slightly above the prior-year level of EBIT in 2017.
(Annual Report)
Daimler Financial Services
The Daimler Financial Services division supports the sales of the Daimler Group’s automotive brands in approximately 40 countries worldwide.
The segment’s product portfolio primarily consists of tailored financing and leasing packages for customers and dealers but also insurance brokering, fleet management services, investment products and credit cards as well as various mobility services such as the “moovel” mobility platform.
In 2016, Daimler Financial Services grew 9% to 17% of total sales or 20.7 billion euros – 13% of total sales after adjustment.
The Financial Services segment delivered an EBIT margin of 8.4% compared to 8.5% in 2015. Daimler Financial Services are expected to deliver EBIT in the magnitude of the prior-year level. In addition, Financial Services division delivered a return on equity of 17.4% in 2016 vs. 18.3% in 2015.
Sales and profits
(Financial Tables, Daimler)
In the past three years, Daimler had sales and profit growth and margin averages of 9.2%, 1.3% and 5.7%.
(At A Glance, Daimler)
Cash, debt and book value
As of December, Daimler had 10.98 billion euros in cash and cash equivalents and 117.7 billion euros in financing liabilities and a ratio to total equity of 1.99 times vs. 1.85 times the year prior (1).
Further, 5% of Daimler’s 243 billion euros assets are identified as intangibles. The carmaker also had a book value of 59.1 billion euros vs. 54.6 billion euros in 2015.
(At A Glance, Daimler)
Cash flow
(Annual Report)
In 2016, Daimler’s cash flow from operations jumped to 3.7 billion euros from 222 million euros in 2015. As observed, profit before taxes had a little less decline. In addition, less cash outflow was observed in Daimler’s inventories and receivables from financial services.
Capital expenditures including additions to intangible assets were 8.83 billion euros leaving Daimler with free cash (out)flow of 5.12 billion euros vs. free cash (out)flow of 7.11 billion euros in 2015.
(2014 and 2016 Annual Reports)
Despite these heavy free cash flow losses, Daimler was able to even grow its shareholder payouts –Â more dividends than share repurchases –Â on a year-on-year basis.
Daimler also allocated 3.65 billion euros in an acquisition of Athlon Car Lease International B.V. –Â a European mobility solutions and car leasing services partner –Â and now functions under Daimler’s Financial Services division.
Daimler also allocated 7.72 billion euros in marketable debt securities and received 5.39 billion euros in proceeds in these assets.
(2014 and 2016 Annual Reports)
Daimler also took in 15.8 billion in short- and long-term financing liabilities including changes and repayments.
Conclusion
Like that of the previous BMW article, Daimler is another German carmaker that has reliable long-term growth car business.
Read the BMW article
Other than its impressive profitability over the years of operations, Daimler exhibited a heavily leveraged balance sheet accompanied by poor free cash flow performance despite rising profitability in most of its divisions.
Daimler also expects lesser profitability in both of its truck and vans segments in fiscal 2017.
(Daimler AG Germany Share Price and iShares Core S&P 500 ETF, Financial Times)
Thirty analysts had a median target of 78 euros per share, a 10.5% appreciation from its share price of 70.56 euros a share at the time of this writing.
Asking a 20% margin and applying three-year earnings multiple and profit growth averages gave a value of 64 euros per share or seven times fiscal 2017 earnings.
Lastly, Daimler could be hooked with some recent diesel-engine fraud issue that just surfaced last week.
In summary, Daimler shares are a pass having a value of 68 euros per share, 3.6% off from Wednesday’s share price.
Notes
- Annual Report:
Disclosure: I do not have shares in any of the companies mentioned.
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