DaimlerChrysler AG and its former partner Chrysler posted weaker results in the second quarter as their trans-Atlantic union dissolved, but executives said Wednesday they're optimistic about the rest of this year despite a sales slump in the U.S. market.
DaimlerChrysler also disclosed plans for a stock buyback now that its separation from Chrysler is complete. It plans to spend about $10.2 billion buying back nearly 10 percent of its shares over the next year.
“The announced share buyback program… underlines our trust in the future of the new Daimler and all its divisions,” DaimlerChrysler Chairman Dieter Zetsche told investors and reporters in a conference call. “We have everything in our hands to shape our future successfully.”
DaimlerChrysler said its profit fell 14 percent to $2.52 billion, or $2.36 per share, in the April-June period. Chrysler and its financial arm made a $549 million net profit in the second quarter but would have posted an operating loss were it not for accounting changes due to the sale of a majority stake in Chrysler to a private equity firm.
DaimlerChrysler handily beat Wall Street's expectations. Analysts surveyed by Thomson Financial had forecast earnings of $1.74 per share, while Standard & Poor's said DaimlerChrysler's results were well above its estimate of $1.55 per share. The ratings agency upgraded the automaker's shares from “sell” to “hold” and raised its 12-month target price by $22 to $98.
DaimlerChrysler's shares rose $3.27, or 4 percent, to close at $87.61 Wednesday on the New York Stock Exchange.
Zetsche said DaimlerChrysler's vehicle sales should be in line with the record 2.1 million the company sold in 2006, while full-year pretax earnings will increase to $11.6 billion, compared with $6.8 billion in 2006.
Zetsche said the company is concerned about turmoil in the U.S. financial market but predicts sales will rebound in the beginning of next year.
“We do not see a recession. We see some slowdown in growth,” he said.
It was the last time Chrysler's full earnings will be included on DaimlerChrysler's books. Future Chrysler earnings will not be made public because DaimlerChrysler earlier this month sold an 80.1 percent stake in Chrysler to Cerberus Capital Management LP, which has taken the company private. DaimlerChrysler will report earnings on its 19.9-percent share in Chrysler going forward but they won't be broken out from other holdings.
DaimlerChrysler expects a charge of around $3.4 billion for the year from the sale of Chrysler group and its financing arm, lower than its previous estimates of $4.1 billion to $5.47 billion. Zetsche said the German automaker has no plans to divest its share in Chrysler, saying it “doesn't significantly impact overall profitability.”
“We have two main interests, one being a successful future for Chrysler, the other being close cooperation wherever it makes sense,” Zetsche said.
Although Chrysler and its financial operation made a net profit, the two did not take scheduled depreciation and amortization after May 16 due to the sale, DaimlerChrysler said. Results were boosted by $946 million due to the lack of depreciation and amortization, the company said.
The net profit included a roughly $406 million cost from the early redemption of long term bonds for financing liabilities for Chrysler Group, the company said in a statement.
The result was also an 18.8 percent increase over the second quarter of last year, when Chrysler Group made $462 million.
The dollar figures reported by Chrysler were based on the euro-dollar exchange rate at the end of the quarter.
DaimlerChrysler's Mercedes Car Group posted a pretax profit of $1.64 billion in the quarter, or nearly double its pretax profit a year ago, but it was still dragged lower by the rising euro and other foreign exchange issues.
The truck group saw its second-quarter pretax profit rise to $821.21 million, lifted in part by improved sales in Europe and Latin America but hurt by lower sales in North America and Japan.
The company's shareholders will meet in Berlin on Oct. 4 to approve a name change, to Daimler AG. The proposal is expected to pass, despite concerns that by not restoring the name to Daimler-Benz, the company is ignoring the work of Karl Benz, who designed and patented an internal combustion flat engine before linking his company, Benz & Cie, with Daimler in 1926.
