Mercedes' (MBGAF) Q4 Results, Buyback & EV Strategy in Focus

Mercedes-Benz Group MBGAF unveiled its quarterly results, coupled with plans for share buybacks and a recalibration of its electric vehicle EV strategy.

Mercedes posted fourth-quarter 2023 revenues of €40.2 billion, down 1.8% year over year. Full-year revenues amounted to €153.2 billion, up 2%. Earnings before interest and taxation (EBIT) came in at €4.33 billion in the quarter, down 20.1%. The full-year figure declined 4% to €19.66 billion. Net profit declined 21.5% to €3.16 billion in the quarter under review. Full-year net profit inched down 2%.

On a positive note, the company announced an additional share buyback program worth up to 3 billion euros.

However, this Germany-based auto giant expects challenges going forward amid supply chain issues, geopolitical uncertainties and evolving market dynamics. Mercedes highlighted persistent supply chain disruptions as a significant risk factor, with CEO Ola Källenius acknowledging the impact of supply constraints on the company's operations in the latter half of 2023 and into the first quarter of 2024. These challenges, coupled with inflation and rising supply chain costs, contributed to a muted outlook for 2024.

Moreover, escalating geopolitical tensions, particularly the Russia-Ukraine conflict and strained relations with China, add layers of uncertainty to the business environment. The company anticipates unit sales of Mercedes-Benz Cars to remain unchanged from the 2023 level. Adjusted return on sales is expected in the band of 10-12%, down from 12-14% in 2023.

Meanwhile, in a notable shift from its previous stance, Mercedes is recalibrating its EV strategy. The company, which previously aimed to sell only electric vehicles by 2030, now anticipates a more gradual transition. The revised plan reflects the evolving market dynamics and customer preferences. It now expects only 50% of its sales to be all-electric by 2030, acknowledging the significance of gas and hybrid vehicles in its portfolio.

Mercedes’ recalibration of its EV strategy reflects broader trends in the automotive industry. With global EV sales growth experiencing a slowdown and customers expressing concerns about charging infrastructure and reliability, automakers are reevaluating their electrification timelines. CEO Ola Källenius emphasized the importance of aligning with market conditions and customer needs, signaling a pragmatic approach to the electrification journey. Despite the adjustment, MBGAF remains committed to innovation, with a robust pipeline of products, especially in the battery EV segment, slated for launch in the coming years.

Zacks Rank & Key Picks

MBGAF currently carries a Zacks Rank #3 (Hold).

Some better-ranked players in the auto space are General Motors GM, PACCAR PCAR and Allison Transmission ALSN, each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for GM’s 2024 sales and earnings suggests year-over-year growth of 1.9% and 17.2%, respectively. The EPS estimates for 2024 and 2025 have improved by $1.26 and $1.70, respectively, in the past 30 days.

The Zacks Consensus Estimate for PCAR’s 2024 and 2025 EPS has moved up by 36 cents and 25 cents, respectively, in the past 30 days. The trucking giant surpassed earnings estimates in the trailing four quarters, the average surprise being 17.07%.

The Zacks Consensus Estimate for ALSN’s 2024 sales indicates year-over-year growth of 2.6%. The EPS estimate for 2024 and 2025 has improved by 16 cents and 15 cents, respectively, in the past seven days.

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