Mercedes-Benz Earnings: Results Dented by Mix, Cost, and Supply Chain Disruption

Mercedes-Benz MBG reported third-quarter earnings per share of EUR 3.44, EUR 0.23 better than the EUR 3.21 FactSet consensus but down EUR 0.22 from EUR 3.66 last year. Supply chain disruption (chips, logistics) kept consolidated volume relatively flat, up only 0.2% to 454,000 units from 453,000. Group revenue slipped 1% to EUR 37.2 billion, from EUR 37.7 billion a year ago, but was just a hair above consensus by EUR 23 million. Generally, pricing was favorable except for battery electric vehicle where competition has intensified. Mix was slightly unfavorable, as top-end product volume declined slightly more than core and entry.

Third-quarter group adjusted EBIT was EUR 4.9 billion for a 13.2% margin, versus EUR 5.3 billion and a 14.2% margin last year, as a 36% increase in van profitability was offset by 18% and 37% declines in car and financial services profitability but beat consensus of EUR 4.7 billion by 5%. While raw material cost slightly improved, negative currency effect, higher inflation, and increased supply chain costs more than offset.

Management maintained 2023 guidance but changed tenor. Car unit volume is forecast at the prior-year level, with an adjusted EBIT margin of 12%-14%. Van unit volume is forecast significantly above the prior-year level and an adjusted EBIT margin of 13%-15%. Management had previously pointed to the upper end of margin ranges, but now says the lower end is more likely.

Our unchanged 2023 group revenue estimate is EUR 150.6 billion, but we lowered our group adjusted EBIT margin assumption by 80 basis points to 12.2% (the lower end of new management guidance), from 13.0% in our previous model. We have consistently stayed at the lower end of guidance because of persistent uncertainties including geopolitical conflict, inflationary cost pressures, and softening economic conditions in major auto markets. The 5-star-rated shares of Mercedes-Benz currently trade at an attractive 50% discount to our EUR 116 fair value estimate.