Advertisement

Profit Climbs After Merger of Auto Giants

Share
TIMES STAFF WRITER

DaimlerChrysler, the auto giant created in a $40-billion merger last year, reported on Thursday a 29% increase in net income last year on the strength of brisk sales of Mercedes-Benz and Chrysler vehicles.

The sketchy financial report is the first since DaimlerChrysler was formed in the combination of Daimler-Benz, Europe’s largest industrial company, and Chrysler Corp., the U.S.’ third-largest auto maker.

Now the world’s fifth-largest auto maker, DaimlerChrysler posted 1998 net income of $6.1 billion, or $6.54 a share, compared with a pre-merger combined 1997 net income of $4.7 billion, or $5.02 a share.

Advertisement

The net income excludes one-time merger costs of about $804 million, which analysts said were higher than expected.

DaimlerChrysler did not provide a detailed explanation of its financial statements, which it termed preliminary, but said it will do so at the company’s annual news conference in Stuttgart, Germany, on March 31.

The company also did not break out fourth-quarter results since the merger wasn’t completed until halfway through the period. It will release first-quarter results--covering the first three months of 1999--in late April.

Strong earnings are translating into bonuses for workers. DaimlerChrysler said Thursday that its 80,775 U.S. hourly employees will receive profit-sharing payments averaging $7,400 and white-collar workers are eligible for similar payments. That’s slightly below the record payout under the firm’s U.S. profit-sharing formula. The company’s 140,000 German auto workers will receive payments of about $3,300. The earnings were generally in line with analyst expectations but DaimlerChrysler shares fell $5.13 to close at $95.81 on the New York Stock Exchange, as well as on the Frankfurt exchange.

Analysts said the sell-off was not unusual because shares rose recently on hopes of a positive earnings surprise. Also, investors are increasingly concerned that auto sales could slow this year.

Just on Wednesday, Volkswagen reported strong earnings but warned that current profit levels will be difficult to sustain because of economic conditions in Asia, Latin America and Europe.

Advertisement

David Healy, an analyst for Burnham Securities, said the fall in DaimlerChrysler’s stock is an overreaction. The company, he said, is well-positioned to thrive in the booming U.S. market while having limited exposure in Asia and Latin America.

“They should benefit from the overall strong U.S. market, and Europe is flat but not collapsing,” he said.

DaimlerChrysler also is expected to benefit from cost savings from the merger. It expects to save $1.4 billion this year, and as much as $3 billion annually within three years.

The company, which also has interests in commercial trucks, aerospace, financing and rail cars, said earnings before taxes climbed 32% to $9.6 billion and operating profit increased 38% to $10.1 billion. Revenue increased 12% to $155 billion in 1998 from $138 billion the previous year.

Both Chrysler and Mercedes-Benz recorded strong sales last year, a trend that is continuing into 1999. Chrysler increased U.S. sales 9% last year, largely fed by sales of sport-utility vehicles and pickups. Mercedes sold a record 926,000 vehicles worldwide.

Advertisement