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DaimlerChrysler Surprises with Strong Earnings

German-US carmaker DaimlerChrysler AG presented second-quarter results that beat analysts’ expectations by some considerable margin and were strong enough for the group to raise its profit forecast for the full year.


Jürgen Schrempp is pleased with his company's successes

DaimlerChrysler said that operating profit in the second quarter of 2002 had come in at 1.9 billion euro, far ahead of analysts’ forecasts of an average 1.3 billion euro.

A strong performance by the group’s U.S. arm, Chrysler Corp., came as a particular surprise. The unit booked operating profit of 788 million euro.

Group revenue was 39.3 billion euro, down 5% on the year.

DaimlerChrysler’s strong performance in the second quarter encouraged chief executive Jürgen Schrempp to raise his full-year guidance. He said he now expected operating profit to come in "clearly above a threefold increase" on the previous year’s figure. His last forecast had been for operating profit to grow twofold from 2001.

According to Schrempp’s latest outlook, DaimlerChrysler is set to book operating profit of more than 4 billion euro this year, excluding one-off effects. In 2001, group operating profit was 1.35 billion euro.

Analysts on Thursday were searching for explanations for the group’s unexpectedly strong performance in the second quarter.

Michael Raab at Bankhaus Sal. Oppenheim said he was at a loss to explain how the group had turned in such convincing profit figures. He was particularly surprised at the strong profit margin of 4.8% per vehicle sold. "They must have done a good job on the costs side," he said.

Frank Biller at Baden-Württembergische Bank said that Schrempp must be very sure of the group’s performance in the second half if he was prepared to lift profit guidance by such a substantial margin. Biller said he was convinced that the group continued to account conservatively, because it could ill afford to get its forecasts wrong.

In DaimlerChrysler’s view, the strongest risks in the second half will come from the North American market.

The group’s chief financial officer, Manfred Gentz, said he expected Chrysler’s output in the second half to decline from the first. But the group expects Chrysler to book another profit in the second half – even though it faces more intense competition, in particular from market leader General Motors. The U.S. unit is thus likely to book an operating profit of around 1 billion euro for the full year.

The strong performance of DaimlerChrysler’s commercial vehicles unit in the second quarter also came as a surprise. As the group’s second problem child alongside Chrysler, U.S. trucks subsidiary Freightliner entered profit sooner than expected.

As a result, the commercial-vehicles business as a whole also returned to profit on slightly higher revenues. The operating profit for the business totaled 32 million euro. But market conditions remain difficult, one of the reasons why Gentz did not raise guidance for the division.

Mercedes-Benz and Smart were able to build on their successes, with Mercedes extending its market share. But its revenue rose at a faster pace than operating profit, which increased only marginally.

DaimlerChrysler’s third problem case, Japanese subsidiary Mitsubishi Motors, in which it holds a 37% stake, ceased in the second quarter to represent a burden on the group’s results.