“The third quarter shows a very strong performance and provides further proof that we are on the right path to reducing the break-even of our company,” CFO Harald Wilhelm said in a statement. “We expect positive momentum to continue in the fourth quarter.”
Daimler said it expects to publish updated guidance for the full year when it reports full financial results on Oct. 23.
Daimler coped with the biggest disruption to the auto industry in decades better than feared, though it did suffer a 1.68 billion-euro ($1.97 billion) operating loss in the second quarter. Wilhelm told analysts on Oct. 6 that pricing and product mix held up well in the last three months and said the company will follow through with plans for a major restructuring aimed at reviving profit margins.
Industrial free cash flow was 5.14 billion euros ($6 billion) in the third quarter, exceeding analysts’ consensus for 2.97 billion euros, according to Daimler. The company burned through 1.3 billion euros ($1.5 billion) in the second quarter, when the pandemic forced the most widespread closing of factories since World War II.
The free cash flow beat is “a solid surprise,” Philippe Houchois, a Jefferies analyst with a buy rating on Daimler shares, wrote in a report.
Daimler’s bullish fourth-quarter outlook is predicated on there being no further lockdowns to contain the spread of COVID-19. German Chancellor Angela Merkel’s top health official ruled out a second nationwide shutdown earlier Thursday even as he warned Germany risks losing control over the resurgent coronavirus. The country has joined the likes of France and the UK in setting records for new cases this week.
CEO Ola Kallenius said last week that Mercedes has not lived up to its potential to turn sales success into profit growth. He said during Daimler’s Oct. 6 capital markets day that the company will put less emphasis on volume and more on improving earnings in the midst of a costly shift to electric cars. It will cut fixed costs, capex and R&D spending at Mercedes by more than 20 percent by 2025 as part of a strategy overhaul to take the brand further upmarket.
The move will see Mercedes, currently the world's top selling premium car brand, turn its back on a decades-old strategy of chasing sales volume to focus on the industry's most profitable segments: sedans and SUVs.
The COVID-19 pandemic had led to a slump in sales, pushing the company to operating losses in the first and second quarters.
To counter losses, Mercedes has stopped building sedans in the United States to focus on more profitable SUVs, combined its fuel cell development with Volvo Trucks, and halted an autonomous drive development alliance with BMW.
Reuters contributed to this report