Daimler Truck Hldg S/Adr

Good morning everyone and welcome to Daimler Truck's second quarter 2026 earnings call. I'm Marcus Poppe, head of investor relations at Daimler Truck. On behalf of Daimler Truck, I would like to welcome you to our Q2 earnings global conference call. Joining me today are Karin Radstrom, our CEO, and Eva Scherer, our CFO. Karin and Eva will begin with an introduction directly followed by a Q&A session. The presentation is available on Daimler Truck investor relations website. Please note that this conference will be recorded. The replay of the conference call will also be available as an on-demand audio webcast in the Investor Relations section of the Daimler Truck website. I would like to remind you that this teleconference is governed by the safe harbor wording you will find in our published results documents. Please note that our presentation contains forward-looking statements that reflect management's current views with respect to future events. Such statements are subject to many risks and uncertainties. If the assumptions underlying any of these statements prove incorrect, actual results may be materially different from those expressed or implied by such statements. Forward-looking statements speak only to the date on which they are made. With that, let's jump into the results. Karin and Eva will walk you through how the quarter developed, and after that, we will open things up for analyst questions, followed by the media. Karin, over to you. Thank you.

Thanks Marcus and good morning everyone. Let me start by sharing the key figures for the quarter. For the group we generated 12.3 billion in revenue, up 5%, with adjusted EBIT of around 800 million and a net profit of 1.5 billion euro. Earnings per share from continuing and discontinued operations amounted to €1.91. Our balance sheet remains strong with a net industrial liquidity of €8.3 billion. I also brought some business highlights for you. As you might have seen, we pre-released our second quarter results and raised our full year guidance two weeks ago. This increase reflects the strong performance of Trucks North America, driven both by higher expected unit sales for the remainder of the year and the approval of Daimler Trucks US content application. Another important milestone in Q2 was the launch of Daimler Truck Defense. By bringing our defense activities together under one global brand, we can make better use of our global engineering expertise, manufacturing network, sales organization and service capabilities across the whole group. As we continue to grow this business with the ambition of reaching 1 billion euro in defense related revenue by 2028. Another area where we continue to make progress is our Mercedes-Benz Own Retail Strategy. The expansion of our service networks helping us to stay close to our customers and grow service revenue. In the second quarter, one big highlight was the integration of E-Star in the UK, which adds six new locations to our network. The retail investments are helping us build a stronger, more truck-focused service network and of course also supports our ambition to significantly expand our retail presence by 2030. We also continue to invest in the future of our business. Last night we announced a new US manufacturing facility. This investment gives us the rare opportunity to start with a blank sheet of paper and create a state of the art facility which will be designed around the latest manufacturing technologies, a flexible production system and of course the products that will define our future. Startup production is planned for late 2029, so this is a long-term investment which reflects our confidence in the US market and our commitment to strengthening our manufacturing footprint. The new facility will help create a production network that's more flexible, resilient and positioned to support future growth. Turning to our industrial business performance. Revenue increased 6% year over year to €11.4 billion. At the same time, adjusted EBIT declined 22%. to 780 million and adjusted return on sales came in at 6.8% compared to 9.2% in the prior year quarter. The year-over-year decline in earnings was driven by North America, mainly due to the ongoing tariff headwinds that were significantly higher than in the second quarter last year. This more than offset the positive earnings contributions from Mercedes-Benz trucks and Daimler buses. At Mercedes-Benz, we remained disciplined on cost and our Cost on Euro program remains on track. At the same time, we're making significant investment in research and development with a large share flowing directly through the P&L and therefore affecting current earnings. It's in line with our commitments that we talked about in our capital market day last year. Now to orders. Incoming orders remained at a healthy level in the second quarter, reaching around 74,000 units, which is up 27% year over year. The 35% sequential decline from Q1 reflects a normalization following our exceptionally strong first quarter and does not indicate a change in the underlying market environment. Unit sales were up 8% year over year, totaling around 87,000 units for quarter two, resulting in a book to bill of 86%. The backlog decreased compared to the first quarter but remained on a very healthy level at approximately 50% above last year and well above historical averages. So we have good visibility for the remainder of 2026. Our zero emission sales increased to around 1,400 units in the second quarter, up 21% year over year. Now turning to our markets. We continue to hold leading positions in both of our key regions. In North America, the Class 8 market totaled 66,000 units in the second quarter, down 6% year over year. What's encouraging is that order activity remains supportive and we are confident in a strong second half of the year. At the same time, the market remains below previous cycle highs. And retail sales are still running below last year's levels following the soft start to 2026. With a market share of 38% year to date, we maintained our leading position in the market. In Europe, the heavy duty market expanded by 10% year over year to approximately 164,000 units. Growth was supported mainly by a strong demand in Spain, Poland and Lithuania, while some of our major markets like Germany, France and the UK remained below market average year to date. We further strengthened our leadership position in Europe's medium and heavy duty segments, achieving an overall market share of 18.9%. In zero emission trucks, we achieved around 38% share of the European heavy duty segment in the first half of 2026. So we are clearly leading. Even though zero emission truck adoption in Europe remains at an early stage, registrations increased to around 6% of total registrations in Q2, which is up from approximately 2% in the previous quarter and in 2025. We believe we are well positioned to benefit from the continued transition towards sustainable transportation. So we're seeing very different dynamics across our markets, but our competitive position remains strong. Now handing over to you, Eva, to take us through the individual segments and some of the drivers behind the results.

Thank you, Karin, and good morning, everyone. Let me start with Trucks North America. In the second quarter, revenue increased by 2% year over year to around 5.2 billion euros, driven by an 8% increase in unit sales. Compared to the first quarter, revenue was up 35%. Adjusted EBIT more than doubled from the first quarter, increasing to 435 million euros from 209 million. Adjusted return on sales improved from 5.4% to 8.4%. While profitability remained below last year's strong level of 12.9% due to significant tariff headwinds, we benefited from higher volumes, pricing actions, and continued cost discipline. Order intake reached more than 35,000 units during the quarter, up 156% year over year. Demand in North America remains very healthy and fleet replacement continues as freight conditions normalize. Moreover, since the beginning of the third quarter, we have seen increased activity from our rental, leasing and other large fleet customers, resulting in a July Class 8 order share of 45%. At Mercedes-Benz Trucks, revenue increased to 5.3 billion euros, up 10% year over year and 15% compared to the first quarter. Adjusted EBIT increased to 317 million from 283 million a year ago, resulting in an adjusted return on sales of 6%. Group sales increased 10% to nearly 39,000 units, supported by stronger market conditions in Europe. Order intake reached around 34,000 units, a decrease of 11% year over year. In Europe, demand remained solid and group sales increased by 36%. Profitability benefited from higher volumes and ongoing progress under our Cost Down Euro program. At the same time, earnings were affected by the ramp up of our new global parts distribution center in Halberstadt, and higher research and development costs in the P&L, driven by a reduced capitalization rate of 10.7% from 17.7% in the second quarter 2025. Due to increased inflationary headwinds, net price costs remained negative in the second quarter. As we expect cost pressures to increase in the second half of the year, we have introduced additional pricing measures. In Latin America, market conditions remain challenging. While Brazil showed signs of stabilization during the quarter, supported by the Move Brazil program, the overall market remained 10% below prior year levels. Argentina remained under pressure, adding further challenges across the region. As a result, profitability declined year over year, despite continued pricing actions and cost measures. In India, market demand remained above last year's levels, supported by ongoing replacement activity and healthy domestic orders. Revenue of Daimler buses increased 6% year-over-year to 1.6 billion euros, reflecting positive net price-cost development, continued growth in our service business and favourable foreign exchange effects. Adjusted EBIT increased to 150 million compared to 147 million a year ago, resulting in an adjusted return on sales of 9.6%. Order intake reached around 5,300 units, a decrease of 25% year-over-year, and a book-to-bill ratio of 86%. Unit sales declined, primarily due to weaker demand in our chassis business in Latin America and Mexico. At the same time, our integral bus business in Europe continued to perform well. While sales volumes were below the prior year level, profitability remained strong, highlighting the improved resilience of the business, Strong demand in Europe helped offset weaker market conditions in Latin America and Mexico, as well as ongoing cost headwinds and high inflation in Turkey. While these circumstances led us to lower our 2026 unit sales outlook, we continue to generate strong financial results. At Daimler Truck Financial Services, return on equity improved significantly in the second quarter. Adjusted EBIT increased to 58 million euros compared to 23 million in the prior year quarter and 39 million in the first quarter. At the same time, adjusted return on equity more than doubled year over year, increasing from 3.1 to 7.5 percent. The improvement was driven by a stronger interest margin and a more favorable credit risk environment. In North America, improving freight rates and stronger used truck market also contributed positively. Turning to Archeon, the transaction continues to progress as planned. Following the closing on April 1st, we received approximately 1.4 billion euros in cash. Considering the deconsolidation of the Mitsubishi Fuso cash of 0.3 billion, the net positive cash flow was 1.1 billion. We are now in the final stages of reducing our shareholding to 25%, which is expected to generate an additional cash inflow of 500 to 600 million. This step supports Archeon's transition as an independent listed company and its inclusion in the prime standard segment of the Tokyo Stock Exchange. The final proceeds from the Archeon transaction will depend on the outcome of the over-allotment option and will be confirmed after August 14. In the second quarter, our ad equity participation in Archeon contributed 24 million euros to adjusted EBIT. In reported EBIT, we recorded a gain in the amount of 1.4 billion after deconsolidation and recognition of the ad equity book value as of April 1st. As of June 30th, we adjusted the carrying value of our Archeon investment from the initial valuation to the recoverable amount and recognized an impairment loss of 297 million euros in Q2 within the ad equity result. The Archeon shares classified as held for sale were measured at fair value less costs to sell, resulting in an impairment of 222 million. Please note that the gain was recorded in discontinued activities while the impairment was recorded in continuing activities. The net impact is positive in the amount of 953 million euros. In the second quarter, we generated a very strong industrial business free cash flow of around 1.8 billion euros compared to 20 million in the prior year quarter. In addition to the cash inflow from the Archeon transaction, our operating cash flow in the second quarter was supported by improved working capital management, primarily reflecting optimization of payment terms. As a result, net industrial liquidity increased from 7.1 billion at the end of the first quarter to 8.3 billion at the end of the second quarter. This improvement was achieved despite dividend payments of approximately 1.5 billion and our ongoing share buyback program. Given our strong liquidity position, we intend to launch the second tranche of our ongoing share buyback program immediately after completion of the first tranche. which is expected no later than September 16. The second tranche is planned to be completed no later than June 30th, 2027 with a volume of up to 1.1 billion euros. Now let me turn to our guidance. Before discussing the changes to our full year outlook, let me briefly revisit the assumptions that underpin our guidance. We continue to expect the North American heavy-duty truck market to land between 250,000 and 290,000 units, with a pickup in the second half of the year supported by replacement demand. For the EU30 market, we expect a range of 290,000 and 330,000 units. To date, the Middle East conflict has had only a limited impact on truck demand and global supply chains. Looking ahead, any broader impact will largely depend on the duration of the conflict and could vary by region. At present, macroeconomic indicators point to a more constructive outlook in North America, while sentiment in Europe is stabilizing. As always, our guidance is based on current market assumptions, including the existing USMCA and tariff framework. As Karin mentioned, we raised our full-year outlook for 2026. Let me walk you through the changes. At group level, we now expect adjusted EBIT of 3.6 to 4.1 billion euros. For the industrial business, we now expect unit sales of 340,000 to 370,000 vehicles, revenue of 43 to 47 billion euros, and an adjusted return on sales of 7 to 9%. all above our previous guidance range. We have also increased our free cash flow outlook to between 3 and 3.5 billion euros. The driver of this upgrade is Trucks North America. Based on the lower anticipated tariff impact, higher expected sales volumes and including closure costs of our Portland manufacturing plant, we now guide for return on sales of 9 to 11%. and unit sales of 160,000 to 180,000 vehicles for the full year 2026. For the third quarter, we expect profitability to be between 11% and 13%. For Mercedes-Benz Trucks, we continue to expect a return on sales of 6% to 8%. For the third quarter, we currently expect profitability to be in the lower half of the range, reflecting sequentially higher material costs and the resulting negative net price cost effect. For Daimler Buses, continued weakness in Latin America and Mexico has led us to lower our full-year unit sales outlook to between 20,000 and 25,000 units. All other guidance items remain unchanged. For the third quarter, we expect profitability in the upper half of the guidance range. Financial services remains on track, and we continue to expect an adjusted return on equity of 6% to 8% in 2026. Overall, The second quarter marked a turning point for Daimler Truck. The actions we have taken, together with improving market conditions and a stronger outlook for trucks North America, increase our confidence that the positive trajectory established during the quarter will accelerate significantly in the third quarter. And with that, Marcus, I think we're at a good point to open it up for questions.