STUTTGART -- Daimler reported a fourth-quarter earnings increase of 3 percent year-on-year and gave a tepid earnings outlook for 2017 as aggressive spending to develop next-generation cars holds back gains at Mercedes-Benz and heavy truck demand slumps.
Adjusted earnings before interest and taxes rose to 3.58 billion euros ($3.86 billion) in the quarter, Daimler said on Thursday. Operating earnings increased 19 percent to 3.46 billion euros, it said.
Fourth-quarter results missed analysts' expectations, hampered by slowing U.S. and China auto market growth as well as persistently weak heavy truck demand.
Revenue edged 1 percent higher to 41 billion euros.
Earnings at Mercedes cars rose 22 percent in the quarter to 2.63 billion euros. In contrast, profit at Daimler trucks dropped 47 percent to 365 million euros, hurt by slumping sales in North America and "intense competition" in Europe.
Profit at the Mercedes cars division is expected to rise significantly above its 2016 total in the current year, Daimler said, in comments which may reassure investors that earnings have yet to peak.
Daimler’s been reaping the rewards of a makeover at Mercedes that overturned its stodgy image with an aggressive rollout of upgraded models like the revamped E class. Daimler’s challenge now is to invest in a second round of redesigns that can maintain the momentum as rivals push back. Higher spending to develop electric cars, autonomous driving features and digital connectivity is adding to the pressure.
In 2016, Daimler increased research and development spending, which it said was already “very high,” by 15 percent in 2016 to 7.6 billion euros.
Profit will rise only "slightly" this year, the automaker said. For 2017, EBIT is expected to grow between 2.5 percent and 10 percent, as buoyant sales of the new E class compensate for continuing weakness in trucks and slower growth in China and the U.S. Daimler said China's car market should expand again slightly in 2017 while U.S. demand flattens at its current high level.
Sascha Gommel, a Frankfurt-based analyst with Commerzbank, said the company's outlook for 2017 "looks to be very cautious." While Mercedes’s profit margins are strong, the automaker's overall profitability is being dragged down by the truck and van units, he said.
For the full year 2016, the group reported 5 percent growth in unit sales and a 3 percent increase in revenue to 153.3 billion euros. Daimler proposed an unchanged dividend of 3.25 euros per share.
Bloomberg and Reuters contributed to this report