Mercedes-Benz flags market uncertainty despite 2022 earnings boost

The Mercedes star logo is seen in front of the Mercedes-Benz customer center in Sindelfingen, southwestern Germany, on February 13, 2023.

Thomas Kienzle | AFP | Getty Images

Mercedes-Benz Group on Friday beat analysts’ forecasts with annual earnings of 20.5 billion euros ($21.80 billion), but the premium carmaker warned of lower earnings this year due to economic uncertainty.

The company’s forecast chimes with warnings from across the industry of a challenging year ahead, with Germany’s autos association predicting that car sales this year would hit around 74 million vehicles globally, up 4% from last year but still 8% below pre-pandemic levels.

The company hit its forecast of a 13%-15% adjusted return on sales in the cars division, reporting a 14.6% margin for 2022.

But it forecast a lower adjusted return of 12%-14% on sales for the cars division in 2023 and group earnings slightly below 2022, even though sales at the Mercedes-Benz Cars business are expected at the same level.

“In 2022 we were grappling with primarily semiconductor shortages, but also an energy crisis in Europe and a bit of a stop and go in China due to Covid,” Mercedes-Benz CEO Ola Källenius told CNBC’s Annette Weisbach, adding that the full-year results were nonetheless “financially very robust.”

“If we look at 2023, we think that we will see a gradual easing of the supply chain constraints. We’re not out of the woods completely yet but we expect that to get better,” he said.

However, he added that the company is “very aware” of the macro environment. “Interest rates are rising so we need to watch what the economy will be doing in the main markets,” he said.

Roughly 50% of the company’s annual portfolio is financed, he said, meaning that higher rates will have an impact. However, he said the top end of its market was more resistant to these effects.

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Mercedes-Benz share price.

Daniel Roeska, analyst at Bernstein Research, said: “Given the rising input cost, we are encouraged Mercedes is putting value over volume and planning with flat volumes in 2023 to protect pricing.”

CFO Harald Wilhelm told analysts and reporters that reducing costs as planned was “not a walk in the park” given inflation but the company was sticking to a cost reduction target of 20% by 2025 from 2019 levels.  

Shares were up 2.1% from Thursday’s close at 74.13 euros at 0845 GMT.

Rival Volkswagen has reported earnings at the upper end of its target but a net cash flow that was far below target because of supply chain bottlenecks. VW has also forecast a weak economy and ongoing shortages in key components in 2023.

Mercedes-Benz, unlike its volume carmaker rival, was able to boost margins despite rising costs by focusing more on top-end sales, which saw particularly strong growth in 2022. These are expected to rise slightly again this year, Mercedes said.   

The company, which committed on Thursday to buy back up to 4 billion euros in shares by 2025, reported an adjusted free cash flow in its industrial business of 9.29 billion euros, down 8% from last year.

Analysts at JPMorgan said the share buyback was “another important step” by management towards being the “most competitive shareholder friendly luxury auto company in the market”, offering both best dividend payout ratio and buyback.

Mercedes-Benz said it will propose a dividend of 5.20 euros per share, up from 5 euros last year, amounting to a total payout of 5.6 billion euros.

The company’s fourth-quarter earnings came in at 5.4 billion euros, above estimates of analysts polled by Refinitiv of 5 billion euros.

CNBC contributed to this story.

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