Mercedes-Benz Earnings: Revenue and Profits Rise as Chip Shortage Lessens, but Headwinds Remain

Mercedes-Benz MBG reported second-quarter earnings per share of EUR 3.34, EUR 0.18 better than the EUR 3.16 FactSet consensus and up EUR 0.43 from EUR 2.91 last year. With improved chip availability, albeit still disrupting output, consolidated volume increased 5% to 484,000 units from 463,000. Group revenue rose 7% to EUR 38.2 billion from EUR 36.4 billion a year ago, 1% shy of consensus. Price and mix were positives as the firm focuses on top-end luxury expansion. Second-quarter group adjusted EBIT was EUR 5.2 billion for a 13.6% margin versus EUR 4.9 billion and a 13.6% margin last year, beating consensus of EUR 4.9 billion by 6%. Industrial margin was supported by volume, price, and mix but partially offset by inflationary cost pressure and increased research and development while higher interest rates dented the financial-services margin.

Despite industry headwinds including the chip crunch, the Ukraine crisis, cost inflation, rising interest rates, and a possible recession in major auto markets, management slightly raised 2023 guidance with group adjusted EBIT to “at the prior year level,” up from “slightly below” in previous guidance. 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 (up from slightly) the prior-year level with an adjusted EBIT margin of 13%-15%, up from 11%-13% prior. Industrial free cash flow is now expected to be slightly above the prior-year level (previously at the prior year).

Our unchanged 2023 group revenue estimate is EUR 150.6 billion, but we have raised our group adjusted EBIT margin assumption by 50 basis points to 13.0% (the low end of new management guidance) from 12.5% in our previous model. We have raised our fair value estimate by EUR 2, to EUR 111 per share, due to the time value of money and changes to our model. The 4-star-rated shares of Mercedes-Benz currently trade at an attractive 34% discount to our new fair value estimate.