* Q1 EBIT 2.13 bln euros vs 1.93 bln forecast
* Mercedes Q1 EBIT margin drops 90 bps to 8.4 pct
* Cash burn nearly $21 mln euros per day
* Maintains full-year outlook
* Shares underperform European rivals
(Adds CFO on JV posting loss in China)
By Christiaan Hetzner
FRANKFURT, April 27 German luxury carmaker
Daimler reported a surprise increase in first-quarter
operating profit, helped by its financial services business that
offers loans and leases to car buyers and is benefiting from low
The margin at Daimler's Mercedes brand, the metric most
comparable with profitability at rivals BMW and Audi
, slid about 90 basis points to 8.4 percent, results
showed on Friday.
That was partly due to temporarily lower pricing in China as
the company made way for new models of cars such as the normally
By comparison, Volkswagen said on Wednesday that premium
brand Audi's margin widened 80 basis points to 11.4 percent over
the period. BMW reports its results next Thursday.
The fact that Daimler's profit was boosted from operations
outside its core car manufacturing - including a contribution
from its stake in aerospace group EADS - weighed on the
stock, which underperformed European rivals.
A cash burn of nearly 21 million euros ($28 million) per day
due to a seasonal increase in stocks of unsold vehicles also
unsettled some investors.
"These are especially good conditions for financial services
with low borrowing costs, low credit risk and high residual
values (for cars coming off lease) so it is not really
sustainable," WestLB analyst Adam Hull said.
Financial services "is at a peak level, and the market tends
not to value these profits with a particularly high multiple."
The picture is mixed for carmakers, with strong growth in
the United States offset by a sluggish Europe, where austerity
measures are dragging many economies into recession and
depressing consumer confidence.
Growth in some Asian markets is slowing from previous high
levels, but overall demand for premium cars like the
Mercedes-Benz GLK sports utility vehicle are holding up better
than the price-sensitive mass market models.
Daimler's stock fell 1.4 percent by 1339 GMT, lagging a 0.9
percent gain in the European automotive index, leaving
the company worth about the same as BMW despite its much higher
Mercedes sold about 20 percent more cars in China during the
first quarter, but its local joint venture swung to a small
loss. A spokesman said that was due to a production shutdown to
retool the Beijing plant to build the GLK as a third model. For
all of 2011, the jv had contributed 142 million euros to
"Yes it was negative in the first quarter but I assume it
will bounce back due to the ongoing production in Q2 and Q3 in
China," finance chief Bodo Uebber told analysts during a
Roughly 60 percent of Mercedes cars sold in China last year
were imported, including all high margin S-Classes, a level the
group wants to bring down to about 33 percent in 2015, to avoid
costly import duties.
Group earnings before interest and tax (EBIT) rose 5 percent
to 2.13 billion euros ($2.82 billion), better than the 5 percent
drop to 1.93 billion estimated in a Reuters poll.
Daimler said it still expected its ongoing operations to
report EBIT at the same level as last year, when it earned 9.0
billion euros - guidance so far deemed credible by the market.
Daimler blamed a seasonal increase in stocks of unsold
vehicles for having burned four times as much cash at its
industrial operations than a year earlier, reducing its cash
pile by 1.9 billion euros to 10.1 billion at the end of March.
Uebber stuck to his guidance for a 2012 industrial free cash
flow of more than 2.35 billion euros excluding one-off cash
contributions such as the 250 million euros to its Engine
Holding and Foton joint ventures in the first quarter.
"At first I twitched when I saw how high the cash burn was
in the first quarter, but this kind of seasonal build-up in
inventories is not unusual particularly when you're launching a
lot of new models," said Gerhard Wolf, automotive corporate
credit analyst at Stuttgart-based bank LBBW.
Debt markets were relatively relaxed about the inventory
build-up, with spreads on credit default swaps, which widen when
investors perceive a borrower to be less creditworthy, rising
only a tick despite the high cash-burn rate.
"That's because underlying demand for cars like the Mercedes
E-Class is healthy this year, unlike in 2009 when the premium
car market was shrinking by over 20 percent and Daimler was
desperately trying to move Mercedes off dealers' lots in order
to drum up cash," Wolf added.
Daimler is adding at least 10 new models to its product
range by 2015, including three compacts and three S-Class
derivatives, such as a resurrected successor to the exclusive
Pullman stretch limousine.
($1 = 0.7559 euros)
(Reporting by Christiaan Hetzner; Editing by Erica Billingham)