Mercedes-Benz Group has revised its profitability target for the year, citing challenges in the Chinese market and ongoing trade tensions. However, the company predicts a more favorable second half of the year.
In the second quarter, Mercedes-Benz saw a decline in net profit and revenue due to fewer sales and a drop in more profitable top-end vehicles. Although revenue fell short of expectations, net profit exceeded forecasts. The company now expects an adjusted return on sales of 10%-11% for its cars division, down from the previously projected 10%-12%.
Despite the lowered forecast, the car division’s margin for the quarter reached 10.2%, surpassing its quarterly goal but down from 13.5% a year earlier. Mercedes attributed this performance to operational efficiency, low material costs, and a favorable sales mix. Analysts from Bernstein noted that the results provided some relief amidst concerns of a potential profit warning, while Citi analysts highlighted the company’s improved execution but pointed out weak overall and top-end sales.
Mercedes-Benz maintained its full-year outlook at the group level, supported by new model launches and anticipated sales of top-end vehicles. However, the company expressed caution regarding the Chinese market, which faces strong competition from local carmakers in the entry-level and core segments. Europe, China, and the U.S. cited potential factors that could impact future results, including geopolitical issues and trade tensions.
The company adjusted its annual margin outlook for the vans division, expecting an adjusted return on sales of 14%-15%, up from the original 12%-14%, thanks to favorable pricing and cost reductions. However, Mercedes-Benz lowered its outlook for the mobility business, attributing the change to ramp-up costs for charging infrastructure and challenges in the Chinese market. The adjusted return on equity for the mobility business is now expected to be 8.5%-9.5%, down from the previous 10%-12%, with a focus on cost efficiency moving forward.
Group net profit for the second quarter fell to roughly $3.28 billion from $3.87 billion a year ago, though it exceeded analyst expectations of nearly $3.2 billion. Revenue also declined to $39.89 billion from $41.52 billion, below the forecast of $40.25 billion.
Earnings before interest and taxes (EBIT) were $4.39 billion, compared with $5.42 billion the previous year and slightly below the forecast of $4.41 billion.
