By Rachel More and Ilona Wissenbach
BERLIN/FRANKFURT (Reuters) -German carmaker Mercedes-Benz on Wednesday reported stronger than expected margins at its core autos business as improved sales of premium models helped to offset one-off charges related to job cuts as well as declining sales in China.
Like rivals including Porsche and BMW, Mercedes faces particular challenges in the Chinese premium and luxury market, where a price war driven by local carmakers is hitting demand, while U.S. import tariffs also weigh.
“We are steering the company through a challenging business environment,” said Chief Executive Ola Kaellenius, pointing to tariffs, intense competition in China and the transition to electric vehicles.
In the third quarter, Mercedes-Benz’s return on sales at its car division was 4.8%, up from 4.7% in the same period last year and beating the 3.9% average estimate in a Visible Alpha poll.
This was supported by a 10% increase in top-end models, including the high-margin Maybach and AMG brands, while free cash flow was about 1.4 billion euros ($1.6 billion), prompting the company to resume its share buyback programme.
Operating profit, meanwhile, fell 70% owing to charges related to layoffs as the company implements restructuring measures to save 5 billion euros globally by 2027.
“I think you are clearly delivering on what you had promised us,” Deutsche Bank analyst Tim Rokossa said on a results call with management, also pointing to the buyback resumption.
Shares in the company hit a seven-month high on the news, trading 6% up by 0923 GMT.
Mercedes’ challenges are spread across its most important markets: tariffs in the U.S., falling sales in the highly competitive Chinese market and European emissions targets that have prompted an uneasy shift towards margin-squeezing electric vehicles.
Despite the difficulties in China, which Kaellenius described as a “multi-year task”, he said the carmaker did not want to wade into a price war, focusing instead on moving its cost structures to that country and rolling out technology features to win over customers.
($1 = 0.8575 euros)
(Reporting by Rachel More and Ilona WissenbachEditing by Christoph Steitz and David Goodman)
