Daimler's Generates High Free Cash Flow in Q3, Revises Q4 Outlook

Daimler AG (OTC: DMLRY) revised its full-year and fourth-quarter financial outlook in the third-quarter 2020 report on Friday.

Earnings per share for the quarter ended Sept. 30 grew 19% year-over-year to €1.92. Cumulative EPS from January to September 2020 fell 94% YoY to €0.13.

Key Highlights for Q3 2020: Revenue for the quarter declined 7% to €40.28B, led by an 8% decline in unit sales to 772,703.

EBIT grew 14% to €3.07B, stemming from better-operating margins due to cost-cutting and cash-preservation measures.

Unit sales slumped across all regions, excluding Asia. The unit sales from Asia increased by 9%, driven primarily by a 23% rise in China.

Free Cash Flow for the industrial business increased significantly to €5.1 billion, compared to €685 in the previous quarter. The massive jump was derived from successful cash preservation measures, a revival of operating performance across divisions, and a dividend of €1.2 billion from the Beijing Benz Automotive Company Ltd (BBAC) joint venture.

Total R&D costs during the quarter fell 5.7% sequentially to €2.12 billion, driven by a €139 million reduction in capitalized development costs.

Q3 Capital expenditure of €1.9 billion dropped 33% YoY and 11% sequentially.

Outlook: Considering no further lockdowns, the management estimates continued benefits from the cost reduction measures coupled with the positive market momentum for Q4.

The Management anticipates Q4 performance could partially offset the negative impact due to the pandemic outbreak on unit sales. Based on this assumption, they forecast that the group unit sales and group revenues for FY 2020 would remain below the previous year's figures. However, EBIT margins for 2020 are anticipated to return to 2019 levels.

The management revised the expected adjusted return of sales from Mercedes-Benz Cars & Vans in the range 4.5% to 5.5%, and Daimler Trucks & Buses between 1% to 2%.

The automaker's FY 2020 adjusted cash conversion rate (ratio of cash flow to EBIT) for Mercedes-Benz Cars & Vans segment and Daimler Trucks & Buses segment is pegged at 1 and 2, respectively.

Price Movement: DMLRY shares closed 0.28% higher to $14.20 on Thursday.

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