Daimler Truck Holding AG
XETRA:DTG
If you don’t study any companies, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards.
Utilize notes to systematically review your investment decisions. By reflecting on past outcomes, you can discern effective strategies and identify those that underperformed. This continuous feedback loop enables you to adapt and refine your approach, optimizing for future success.
Each note serves as a learning point, offering insights into your decision-making processes. Over time, you'll accumulate a personalized database of knowledge, enhancing your ability to make informed decisions quickly and effectively.
With a comprehensive record of your investment history at your fingertips, you can compare current opportunities against past experiences. This not only bolsters your confidence but also ensures that each decision is grounded in a well-documented rationale.
Do you really want to delete this note?
This action cannot be undone.
| 52 Week Range |
29.43
47.64
|
| Price Target |
|
We'll email you a reminder when the closing price reaches EUR.
Choose the stock you wish to monitor with a price alert.
This alert will be permanently deleted.
Daimler Truck Holding AG
Earnings Call Analysis
Q3-2023 Analysis
Daimler Truck Holding AG
For the third quarter (Q3), there was a marked increase in Daimler Truck's earnings before interest and taxes (EBIT), with group EBIT rising by 3% to EUR 13.9 billion compared to the same quarter last year.
The company's ability to generate cash strengthened significantly, as evidenced by a nearly half-billion euro increase in free cash flow for the Industrial business, totaling EUR 1.09 billion. This performance was bolstered predominantly by the substantial cash contribution from the Mercedes-Benz segment. Reflecting a solid financial position, net industrial liquidity swelled by 25% year-over-year, reaching EUR 7.7 billion.
Despite a modest 1% increase in third-quarter revenue for the Industrial business, which amounted to EUR 13.2 billion, the adjusted EBIT was robust at EUR 1.3 billion, translating to an adjusted return on sales of 9.8%.
In North America, Trucks segment performance was within the anticipated 11% to 13% profitability range, showcasing strong quarterly results with the Mercedes-Benz segment delivering an adjusted EBIT of EUR 535 million. However, the Trucks Asia sector is projected to face challenges, expecting full-year profitability at the lower spectrum of the 4% to 6% target range.
There was a notable uptick for Daimler Buses, with an adjusted EBIT of EUR 70 million in the third quarter. The segment's growth performance paved the way for the continuation of an adjusted return on sales (ROS) guidance range of 3% to 5%.
Daimler Truck exhibited significant pricing power, which stood as the primary driver of positive earnings performance. However, costs related to inflation and IT investments associated with a recent spin-off presented headwinds. Despite a slight downturn in unit sales affecting volume and structure negatively, the price/cost mix remained favorable in the face of increasing personnel and material costs.
The Financial Services segment observed a year-over-year increase to EUR 3.1 billion in new business. Nonetheless, due to slower market growth and pressure on margins, the full-year guidance for new business is revised downward to a range of EUR 10 billion to EUR 11 billion.
You don't have any saved screeners yet
Good morning, ladies and gentlemen. This is Christian Hermann speaking. On behalf of Daimler Truck, I'd like to welcome you on both telephone and the Internet to our Q3 Results Global Conference Call. We are very happy to have with us today, Martin Daum, our CEO and Interim CFO; and Claus Baessler, our Vice President, Treasury and Tax and Acting Head of Finance and Controlling. Martin and Claus will begin with an introduction directly followed by a Q&A session.
The respective presentation can be found on the Daimler Truck IR website. On our request, 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 telephone conference is governed by the safe harbor wording you'll find in our published results documents. Please note, 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 [ of incorrect ] that 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.
Now with this, I would like to hand over to you, Martin.
Thank you, Christian. Good morning, ladies and gentlemen, and a warm welcome from me as well. Thank you all for joining us today.
Let me begin this call with an event that deeply touched us in early August. I am talking about the sudden death of our CFO, Jochen Goetz. We still feel his lost every day, I personally, we in the Board of Management, his financing controlling team and the entire Daimler Truck organization. At the same time, however, we do not stop driving our company forward.
Regarding the CFO position, this means specifically. First, we are looking intensively for a successor. And let me emphasize that is, of course, important for us to find a successor quickly. But it is even more important for us to find a successor who is a perfect fit. Second, during this transition, Claus Baessler and I are filling the gap. Claus is acting as Interim CFO and Head of Finance and Controlling. I'm taking over the finance and controlling responsibility within the Board of Management. This is why we are doing this Q3 call together today.
Now let me jump into our business topics. As always, we start with a few highlights of Q3. We have achieved an adjusted group EBIT of EUR 1.3 billion and adjusted return on sales in our Industrial business of 9.8%. The earnings per share of EUR 1.13, a free cash flow of our Industrial business of EUR 1.1 billion and a net industrial liquidity of EUR 7.7 billion. Key takeaway here is that we accomplished another successful quarter. We are fully on track to uplift our profitability. We again showed our strong cash generation capabilities, Mercedes-Benz proved the sustainability of its profit uplift is more to come. We continue to be laser-focused on profitability, resilience and value creation. We implemented our updated capital allocation policy and started our share buyback program.
We repeated our EBIT record of the second quarter, and we are on track to achieve a strong profitability in 2023. For the first 9 months of 2023, this comes down to an adjusted return on sales in our Industrial business of 9.7%. This means we improved significantly compared to last year's return of 7.9% and we are fully in line with our increased 2023 full year guidance of 8.5% to 10%. This strong performance is a result of a lot of hard work. I would like to very much thank all our employees around the globe for design and create products that our customers love, for producing high-quality vehicles while still battling a lot of supplier constraints and taking care of fantastic customer relationships in sales. I am truly proud of our entire team.
Let me briefly highlight a few developments that were essentials for the results of the third quarter. The markets in North America and Europe are still strong. Due to bottlenecks with key suppliers, especially in North America, we lost, however, a significant amount of trucks that we could not deliver this quarter. The struggles with a continuous bumpy supply chain continues. We kept our strong price position within the third quarter. This shows two things. Our team is doing a great job and we have great products that our customers truly value.
Now let's take a brief look at the Q3 key topics that drive our profitability and our ambition to lead sustainable transportation. Together with PACCAR, Cummins and the technology partner, Eve, we plan to set up a joint venture in the U.S. for the production of battery cells. This enables access to the right battery cell technology and ensures economies of scale to reach the right cost position.
We received a record order for about 900 all electric Fuso eCanter from Yamato Transport in Japan. I'm absolutely convinced that our FUSO eCanter is the best electric truck money can currently buy and we are making it a true global vehicles. We presented our Mercedes-Benz eActros 600, a battery electric truck with a range of 500 kilometers. It's a great truck to tackle the decarbonization of the long-haul segment. Sales will start this year. Serious production will follow in 2024. We have completed the record run of our fuel cell truck -- success as it covered more than 1,000 kilometers with one fill of liquid hydrogen. This is very clearly shows the potential of fuel cell trucks for demanding long-haul transport.
Now let me give you a quick update on key market developments in Q3. In North America, demand in the Heavy-duty segment continue to be robust. Year-to-date, the [ Class 8 market ] is up 16% versus prior year. We continue to take full advantage of this solid demand. Year-to-date, our market share in Class 8 remains strong at over 40%, and we could have done so much better, if not for significant supplier constraints. Going forward, let me remind you for all new Western Star vocational truck that offer further market share growth potential. These trucks get great customer feedback, and we are very pleased with the 2024 order intake for our entire vocational lineup.
In Europe, we saw a similar strong market environment with increased momentum in Q3. Our market share has increased throughout the year, quarter by quarter and year-to-date. It now stands at 18.8%. Both our key markets share -- are as strong as expected in our market and volume guidance for 2023 seems to be very appropriate.
Overall, unit sales at Daimler Truck decreased by 5% compared to Q3 2022. This slight decrease affected all our Truck segments. The main reason for this are issues at specific suppliers in North America, limiting the number of produced vehicles. In addition, Mercedes-Benz was impacted by a weak market in Brazil following the [ EURO 6 introduction ], while Trucks Asia suffered from a weak market in Indonesia.
Daimler Buses in contrast was able to increase its unit sales by 8%. This signifies the comeback of our Bus business after the severe consequences of the COVID pandemic. Order intake decreased significantly, but as previously discussed, this does not come as a surprise. It is a development we had expected and already indicated earlier this year in our previous calls. We are still working off a very high order backlog. The order intake for 2024 is normalizing, meaning that customers do not reserve slots long in advance, but order the vehicle right at the time when needed. The current order intake fits our expectation for Q1 and Q2 2024. We are satisfied with the order intake for 2024 so far.
As you know, we will give our detailed guidance for 2024, early next year. But as of today, we would expect slightly declining heavy-duty markets for North America and Europe, but still on a level that we would call a strong market. This would result in another very solid year 2024 for Daimler truck.
Regarding zero emission vehicles, the picture is very similar to last quarter. The momentum remain strong for Daimler Truck. For the first 9 months in 2023, we sold 1,161 battery electric trucks and buses, a strong increase of 86% year-over-year, even better [ ready orders ] year-to-date reached almost 3,600 units, a 111% increase, more than double the 2022 figure. Equally important, our customers are very happy with our all-electric trucks and buses. We have received a lot of great feedback. Already by the end of this year, our product portfolio will consist of 10 different battery electric truck and bus -- models.
But as we regularly point out, apart from the right vehicles, our customers also need the right charging infrastructure and the right total cost of ownership. These are two important factors which are still holding our customers back. We, therefore, continue to work on these factors also together with partners and policymakers to make sure that infrastructure and cost parity will be in place as soon as possible. We believe in the strength of our -- product and our customers want to transform their business as well. So we expect our best quarter for -- vehicle sales in 2023 yet to come with another significant increase, and we will do everything to continue this success story in 2024.
With that, I would like to hand over to you, Claus, for a deep dive into our financials.
Thank you, Martin. And also a warm welcome from my side. I'm Claus Baessler, as Martin just said, is as the Vice President, Treasury and Tax, I am currently acting as the Interim Head of Finance and Controlling for Daimler Truck.
Let me now give you a more detailed picture of the financial performance of our recent third quarter. Q3 group EBIT increased by 3% to EUR 13.9 billion versus EUR 13.5 billion in the third quarter last year. Also unit sales came in 5% lower year-over-year. Group EBIT increased by 15% to EUR 1.22 billion, while adjusted group EBIT rose by 5% to EUR 1.34 billion. There are no major special EBIT effects to highlights. As in the previous quarter, the adjustments were mainly cost and investments related to the spin-off. Given the slight drop in unit sales, this increase in earnings is all the more significant.
We remain a strong cash-generating business. For the recent quarter, free cash flow of the Industrial business increased by almost EUR 0.5 billion year-over-year to EUR 1.09 billion. This significant increase was mainly driven by the cash flow before interest and tax of the Industrial business of EUR 1.38 billion, especially supported by the significantly improved cash contribution of our Mercedes-Benz segment.
Net industrial liquidity increased by 25% year-over-year to EUR 7.7 billion at the end of Q3 despite the fact that we have already started our share buyback program in August. Third quarter revenue of the Industrial business increased by 1% to EUR 13.2 billion. Adjusted EBIT stood at EUR 1.3 billion, resulting in an adjusted return on sales of 9.8%..
At Trucks North America, adjusted EBIT came even at EUR 711 million with an adjusted return on sales of 12.4%. In the third quarter, we still had to face some interruptions in the supply chain as a ongoing part shortages have substantially constrained production output. Consequently, unit sales dropped year-over-year by 4% to 47,200 units. This volume loss was also reflected within the segment's EBIT work. However, contribution margin development was stable, supported by strong pricing, which helped overcompensate inflationary cost effects. We expect the specific supply challenge to continue in North America.
Regarding the full year 2023 [ ROS ] target, profitability at Trucks North America for the financial year will fit well within the guided 11% to 13% range. The Mercedes-Benz segment again realized a strong quarter with an adjusted EBIT of EUR 535 million and an adjusted loss of 9.9%, while making further progress on the sustainable uplift of profitability. Total unit sales dropped by 5% to [ 40,100 ] units in Q3. Also year-to-date heavy-duty market share in Europe slightly improved. The unit sales increase in Europe was overcompensated by the declining sales in South America, where the Brazilian market -- and consequently, our local unit sales remained low after the introduction of Euro 6.
Year-over-year, EBIT development in Q3 showed a similar structure as in Q2 and Q1. Pricing remained a positive EBIT contributor as we were still able to more than compensate for the inflation-related cost increases in materials, logistics and personnel, especially due to the weak Brazilian business, volume structure showed a slight negative contribution, [ SDUs ] Truck business, where we are seeing a normalization in the used vehicle market. Full year 2023 ROS performance at Mercedes-Benz is expected in the upper half of the guided 8% to 10% [indiscernible] .
At Trucks Asia, adjusted return on sales came in at 2.7% on the back of an adjusted EBIT of EUR 45 million. Unit sales decreased by 8% in Q3 to 38,100 units due to the market development, mainly in Indonesia. Year-over-year, the main positive EBIT drivers in Q3 were improved debt pricing in Japan, India and international markets and improved aftersales business, especially coming from our Japanese operations. Versus Q3 last year, the contribution from BFDA, our Chinese joint venture improved by EUR 12 million. Nonetheless, the absolute amount of Q3 at equity results from BFDA was still negative with minus EUR 36 million.
Contrary to China, our business in India runs strong. For Q4, we expect a slight increase in performance compared to the third quarter, mainly driven by the ongoing negative contribution from the -- Chinese market. We expect full year profitability in the lower end of the target range of 4% to 6%.
Adjusted EBIT for Daimler Buses in the third quarter stood at EUR 70 million, adjusted ROS at 5.9%, a significant year-over-year improvement from the EUR 23 million adjusted EBIT and 2.5% adjusted ROS in Q3 of last year. So our buses are back. Year-over-year, unit sales increased significantly by 8% to 6,800 units, mainly driven by the strong market development in our core markets in Brazil and Europe, and especially the ongoing recovery in the European -- market. Besides the positive momentum from the improved sales volumes, Q3 EBIT saw positive effect from an improved net pricing and from exchange rates. The strongest headwind came from inflation-related cost increases resulting in material as well as higher personnel costs. The 2023 adjusted ROS guidance for Daimler Buses of 3% to 5% stays valid and adequate.
Adjusted group EBIT increased by 5% to EUR 1.34 billion in the recent third quarter. Looking at the buckets of the EBIT walk, the story is pretty straightforward, as the by far strongest positive impact on earnings performance came from pricing. Due to the slight decrease in the third quarter's unit sales, the impact from volume and structure was negative. Also the Used Truck business had a slightly negative impact. Besides volume price mix, all other buckets had a negative, but each by itself, rather muted year-over-year effect on heavy development. The FX impact consists of a negative EUR 85 million [ translation ] effect and a positive EUR 30 million [ transaction ] effect.
Industrial performance now was only slightly negative despite inflation-related cost increases, especially in material costs and higher personnel costs, we clearly achieved a positive price/cost mix as in Q2 and Q1 this year. Selling and G&A expenses increased year-over-year due to higher personnel costs and IT project costs driven by inflation. Our Financial Services segment with an adjusted EBIT of EUR 45 million had a negative impact of minus EUR 5 million compared to last year's Q3.
Third quarter adjustments to the group EBIT amount to minus EUR 122 million and resulted to a large part as in Q2 from IT-related spin-off costs. In a nutshell, pricing continues to be the major positive EBIT driver, inflation and spinoff-related IT costs remain the biggest cost headwinds. We are on track to further uplift our profitability and it was, is and remains our top priority to improve our resilience. However, high inflation impact and spin-off-related costs remain extremely challenging.
Industrial Business adjusted EBIT increased slightly by 6% to EUR 1.3 billion. Positive contributions came from [indiscernible] with [ EUR 62 million and ] Daimler buses with EUR 47 million, whereas Trucks Asia impact was more or less flat. With minus EUR 27 million, Trucks North America was the only segment with a negative year-over-year impact driven by the difficult supply situation. As indicated in our Q2 disclosure call, we expect reconciliation to have a similar contribution in the second half as in the first half.
To sum it up, Q3 was a very successful quarter. Our successful pricing allowed us to offset cost headwinds. Cash generation remains very strong. We see the [ spend ] margin improvement is on track and Daimler Buses are back.
New business at Financial Services increased year-over-year by -- from EUR 2.5 billion to EUR 3.1 billion, up 23% especially due to the integration of Turkey and the ramp-up of Germany and France. Penetration rate saw an increase of 1%, driven by the catch-up of penetration rates in North America and Brazil.
Contract volume increased by 12% to EUR 27 billion compared to the portfolio volume at the end of last year. Main positive contributors were the newly added markets in Europe, and the solid retail business in North America. Also, contract volume increased. Third quarter adjusted EBIT came in at EUR 45 million, 9% below prior year's quarter. Adjusted return on equity stood at 7.7% compared to 9.6% last year.
The main burden for the weaker year-over-year earnings performance was the integration and ramp-up of new markets in Europe, where the existing portfolio stayed with Mercedes-Benz Group AG. Our cost of credit remained on low levels and below long-term averages despite a regionally heterogeneous cost of risk development.
Regarding the full year guidance, we have to adjust our guidance for the new business from previously EUR 11 billion to EUR 12 billion, we now expect new business to come in at a lower range of EUR 10 billion to EUR 11 billion due to the ramp-up of Germany, and the market environment characterized by margin pressures.
Now let's have a look how our earnings performance translated into cash. The working capital impact in the third quarter was flat with EUR 23 million. As highlighted in our last disclosure call, we expect a significant positive impact on working capital from destocking during the fourth quarter. Net investments in PP&E and intangible assets of minus EUR 298 million were negative on the same level, absolutely level as depreciation and amortization of EUR 272 million.
Provisions and others were positively with EUR 208 million, half of it coming from personnel provisions. This resulted in a cash flow before interest and tax of the Industrial business of EUR 1.38 billion. Tax payments amounted to minus EUR 397 million, which brings us to a free cash flow of Industrial business of EUR 1.09 billion. Adjusted free cash flow of the Industrial business increased by 78% versus prior year to EUR 1.19 billion. Industrial net liquidity stood at EUR 7.7 billion at the end of the third quarter. This figure already contains some impact from our share buyback program that started in August. All in all, once again an excellent cash conversion rate.
And now hand back to Martin, who will give you the outlook for the full year 2023.
Yes. But before we have -- before we have a quick look at the outlook for the full year 2023, please let me give you the following remarks. Our outlook is subject to an exceptional degree of uncertainty due to the further developments in the war in Ukraine and its economic consequences, inflationary pressure and potential Central Bank increases in interest rates as well as the further macroeconomic and geopolitical development.
On the production side, we still assume partial supply bottlenecks. For the rest of the year, we stick to our Heavy-duty Truck market guidance that was updated in July at our last Capital Market Day in Boston. 290,000 to 330,000 units for North America and 300,000 to 340,000 units for [ Europe 30 ].
Our guidance, KPIs and [ group ] and Industrial business level also stay unchanged for the full year 2023. We plan to publish our guidance for the year 2024 at our next annual results conference. Our third guidance slide shows the current full year 2023 guidance on segment level. While we confirm our expectation for the Industrial business for the full year 2023, we have to adjust our guidance for financial services. Here, we adjust the expectation for the KPI on our new business previously, EUR 11 billion to EUR 12 billion, we now expect new business to come in at the lower range of EUR 10 billion to EUR 11 billion.
With that, I would like to thank you very much. Claus and I are now looking forward to your questions.
Ladies and gentlemen, we will begin the question-and-answer session. [Operator Instructions] The first question comes from Daniela Costa from Goldman Sachs.
I have three things, if possible. First one, just, I guess, you're starting fleet negotiations now, particularly in the U.S., if you could give us sort of a bit of a view on how pricing is going given the normalization going on orders?
Second thing, just checking, following up on your commentary on North America supply chain specific issue to continue. Maybe if you could give us more clarity what it is? And when you mean to continue, you mean in Q4 or for longer, how does that impact, I guess, your profitability going forward in the North America segment?
And then the third one, more just medium-term, obviously, you've done well on the margins in Mercedes-Benz. How much self-help do you have there looking into '24 and afterwards, how much of a counterbalance to, I guess, the weaker market outlook and that can that be in terms of supporting margins?
Thanks, Daniela, for your questions, and you covered nearly the entire life in one or three sentences.
First of all, as I alluded in my speech, the business is going extremely normal, which is good these days. That means -- have now fleet negotiations as we have done for many, many years in November -- in October, November, December, and they are going well, both volume-wise and pricing-wise. I can remind you always the price increases we had in the past where -- because we have significant inflationary pressure that's not going away, so why should the pricing go away here, I would say the value of the product for our customers and the options they have speak for themselves. And therefore, I'm pretty positive both in Europe and in North America when it comes to pricing for next year.
The supply issue, you can say the good news is it's limited to very, very few suppliers, mainly one in particular. We are very hopeful that this goes away already as we speak. It cost us a significant amount of trucks in the third quarter. But cost as trucks means they were pushed out, increasing our order backlog, increasing our sold-out situation in the Q1 and Q2 next year, so they are not going away. They are just coming later, but it's a nuisance and it certainly costs a lot in a factory. If you sometimes have to close the factory for a full day, still pay the workers and continue.
We are pretty positive, always knowing that hope is not a strategy, we are pretty positive that we are back to normal somewhere these days and can then play catch up. It's not a systematic issue. It's one unfortunate incident, but it seems these days those incidents just happen.
The medium-term outlook, it's, I would say, it's too early to give you the full flavor, but while we see the market slightly decreasing next year, we still stay very positive with the expectations for our profitability to continue, and that certainly includes our -- all our -- measures, but we will give you more flavor a little bit further down the road.
The next question comes from Miguel Borrega from BNP Paribas.
A couple of questions for me. The first one, just thinking about the moving parts in Q4. So traditionally, this is a stronger quarter, mainly because you don't have the European shutdowns from the summer. However, I remember in 2021, you had those issues in North America supply chain issues. And then in Q4 of last year, you had the one-off payments in Germany and Brazil also started to be sequentially weaker. So thinking about this year, anything you'd highlight that would make Q4 a sequentially weaker quarter than Q3. From what you can see now, you are already in November, anything you'd flag that would hurt the margin. That's my first question.
Miguel, difficult to answer what I can and will answer because what did I say about forward-looking statements and so on. We have not the systematic supply chain issue we had in 2021, where it was obvious that the chip shortage on many levels was ramped. As I said, it's one thing in North America. It's basically one single supplier that harmed does. But I would say, I'm not allowed to give advice. But you see me positive.
Then secondly, last year, we had a surprise with this payments we had to book in the fourth quarter. I think we won't have that issue this year. I see my key guys nodding. So it should be another normal, which means another good quarter for us in Q4 this year.
Great. And then my second question about your confidence around 2024 for only a small decline. I know it's still premature, but given what we are seeing in the industry, maybe give us some feedback from your customers. Most are not even making money now. So why would you expect only a slight decline versus a very strong 2023? Is there an element of you thinking that the first half will be very strong and then we will have a drop in the second half of next year?
Miguel, first of all, the first half will be strong. We know the order backlog for the first and second quarter [indiscernible]. Secondly, it was during my entire life in the trucking industry, normally, you order and then you want your truck latest about 3 months later. That means it's absolutely unnatural other than the big fleets in North America that you order today for the second half of next year. So here, we are really back to normal, seeing then a normal order intake throughout the year, which is good because I see at the moment, for example, when you talk -- body builders and stuff in the supply chain after we produce a truck, a more steadiness, on-time delivery is a huge benefit for efficient supply chain and for our suppliers similarly.
The truck market is a [ broad ] market. I wouldn't go with you that all our customers see a decline in profitability. Well-run fleets have well-run ongoing replacement programs, financing their trucks with their earned cash flow, and we see that especially in North America. The vocational market is still a very strong market, whether that is the Middle East or whether that is North America. Individual markets like Brazil that took a hit this year, we expect to rebound next year. And therefore, the whole global presence we have, I think we are very balanced that if there is a segment or there is a country or a market with weaknesses, we can balance it out with other strong markets.
We have always to remind what we have seen in the last two years was unnatural that it was going on all cylinders everywhere with a respective negative impact. We still think even with a slight decrease in total markets that for us, sunny conditions create performance by Daimler Trucks.
That's correct. And then just if I could squeeze in just one more question on free cash flow. Very solid performance in Q3, namely around working capital. Was there anything that flattered the free cash flow timing-wise, just because Q4 is usually quite strong. And I wanted to ask if you'd expect a similarly strong performance in Q4 of last year. That's my last question.
Thank you, Michel -- Miguel. Regarding the cash flow in the first -- in the fourth quarter, we stick to what we have said earlier, and it was as well embedded into my speech. So we expect a clear improvement in Q4 like last year through further destocking, particularly at the Mercedes-Benz segment.
And I mean, what we achieved this year is that we more continuously were able to free up cash through a certain reduction in inventories and we made as well, quite good progress. You saw that on the working capital side in there. We had a certain over positive impact, I would say, in Q3 coming from [ recedes on the payables ] side. But in general, the story is that we improve cash not only in Q4 but as well throughout the year, and again, particularly in the coming or in the recent fourth quarter.
The next question comes from [indiscernible] from Morgan Stanley.
It's [ Akhil Kuroda ] from Morgan Stanley. Martin, do you have a view on the market outlooks that have been presented by some of your peers in Sweden and the U.S.? Do they maybe appear conservative to you?
Where it's -- in my opinion, it's too early here. I think we all agree in the markets, and there I saw nothing, which I would say it's wrong. We will see a slight decline generally in the markets. But we go, as I said previously, from a blazing hard market to a normal good market. That means we still see next year in the U.S. an above-average market and all indicators are there. But I would say it's a market where a rising tide potentially is not lifting all ships. And I'm pretty confident that we are one of the ships that stay very well [ offload ].
Got it. And then could you maybe tell us a bit more about your plans for Western Star in 2024? How quick do you think Daimler Trucks could pick up market share in the U.S. vocational segment?
I'm pretty bullish. I would say we produce whatever we can produce. And if there is one product which is for the first two quarters already sold out, it's a Western Star product. It's a great product. It -- we have -- the factory is really packed and therefore, we go -- into that and might increase even capacities. So this is a pretty good story. It comes with this balancing. We are in so many segments that if one segment gets weaker, we can balance it off in another segment.
And then lastly, it seems like year-to-date, G&A expenses and Mercedes-Benz have risen a bit faster than the other divisions. What's driven this?
One of the biggest drivers, I mean, we have certainly two drivers. One is the salary increases we experienced in Europe and in Germany. And the second one is especially the IT costs. And here, we have to say we potentially underestimated the challenges we had with the spinoff where we still have to pay for legacy systems to our old sister company, Mercedes and on the other side, have to invest heavily and expense heavily to build up our new system. So this double whammy will still continue for a couple of more quarters and certainly is a pressure on our earnings.
The next question comes from Klas Bergelind from Citi.
So first on the production levels and thinking about [ metal dispense margin ], even if Brazil will likely bottom next year, which could help you with in Mercedes-Benz, annualizing the [ units running ] at around 130,000 units in orders. I think expectations [ are to looking ] at consensus is for around 160,000 units in sales next year, i.e., quite a lot of [ orders the battery here ]. And we obviously sound pretty optimistic on North America.
But your view on Europe please, I guess, must be a little bit different. I mean, when you start thinking about lowering production margin, is that already by the first quarter, I'm trying to think of the sense for the order book duration there in the...
Klas, this is a question which at the moment, it's too difficult to answer because I haven't seen the detail yet for every single one. And if -- first of all, we are in an extremely high level at the moment going -- when I look at our plant in --, we are going [ Saturdays ]. We still press out, squeeze out every single unit that this plant can produce. If this plant goes back to a normal capacity, a normal 100% capacity, it would help the cost position without the smoothness of process, it would help our -- the body builders. And therefore, our inventories, so we don't have -- we can go into a seamless processes here.
So in my opinion, it's -- I don't -- I have no concerns for Europe at the moment. But on that very high level, it's very difficult as you've seen here now in this quarter. We are slightly below last year's third quarter, which was an extremely good and high quarter. If you are in extremely good and high quarter where you closely produce to your capacity, the slightest impact is something can move you on a minus.
On the other side, some accumulation of good things can push you to a plus, which does not mean that you are significantly above prior year. With that all said, it's too early to go into subtle changes now quarter-by-quarter for next year in individual regions, by the way, which then takes it further down. So you see me here, I go back to my general statement, the markets will slightly be lower next year. And that means we go from blazing hot to normal good market conditions, and we will participate from those good market [ petitions ].
Yes, fair enough. It's early days. And I just want to come back to North America, a slight decline again here. I mean, I guess you're a bit [indiscernible] by your market share push on the vocational side. Vocational as market as well should be better than over-the-road long haul, but any sort of view between the different segments from a market point of view, if we would blend the two to get the sort of slight decline that [ would be increase. ]
I mean, I didn't get the question [ complied ]. I mean if I...
[indiscernible] Over the road, yes.
Yes. I would -- I could see that our growth in vocational outpaces the slight reduction on the fleet mark on the over-the-road market. But I wouldn't call the over-the-road fleet market, a weak market. If I look at our orders intake and especially the deals we are negotiating these days, I can't see a huge decline for one fleet that takes less we have others that take more. And you have to understand, we had a lot of customers and a lot of dealers this year on allocation. In allocation means they could have sold more. And now if you take allocation away, they will sell more. So I'm still here optimistic.
Okay. Sounds good. Very quick final one for you, Claus. How much was pure pricing in the bridge on Slide 10 within volume and price mix? I'm trying to understand how pure pricing moved in the P&L.
I mean, of course, you can imagine that pricing was the major impact, as I have already said. Let me just look on Page 10. I mean this is really the overwhelming part. We were talking about more than EUR 0.5 billion of a positive pricing impact, which basically is part of the EUR 400 million you see on the bridge.
So [ EUR 1 billion ] [indiscernible] Thank you.
Next question comes from Nicolai Kempf from Deutsche Bank.
It's Nicolai Kempf from Deutsche Bank. My first one would be on current lead times and cancellation. Do we see any rise in cancellations currently? And [indiscernible]
No, Nicolai, nothing abnormal, no big cancellation .
Okay. Good. And the second one is also a bit in the -- looking ahead to next year. And if we consider kind of the total cost of manufacturing a vehicle in 2024, if lots of moving parts here, right, with latest increasing with supplier, probably also pushing higher prices while raw [ mat ] was coming down. Would you say that the overall cost of a truck next year will be rather up or down?
Again, very difficult to say because a lot of negotiation said, are still ongoing. Yes, that certainly the wages will go up. Yes, on the supplier side, we are in the midst of our discussion with suppliers. So my guess would be then on energy, energy gets slightly lower, which helps both us and our suppliers. So I would say there is still a lot of cost pressure. And therefore, there is no reason yes, to lower pricing. There is a need. We are in an inflationary environment and therefore, will push for strong pricing next year as well.
The next question comes from Jose Asumendi from JPMorgan.
Three items, please. The first one, on [indiscernible] trucks. Can you provide a bit of an update with regards to the measures, efficiency measures you are still harvesting in this division, given the share of aftermarket and service Europe on -- raw mats and that balance between raw material [indiscernible] Next year, compensation, how do you see that into 2024? Do you think there's an opportunity to see some raw material tailwinds besides suppliers passing through price increases.
Third, please to electric trucks, how should we think about the margin dilution coming from [ these trucks? ]
I mean, first of all, with efficiency measures, we are basically focusing on three areas. The one area, as you said, is to increase our service income, and we are doing very, very good progress on that.
Secondly, we have to refocus on our cost of goods sold. That means especially on the efficiency in the factories what we have seen the last two years is everything but efficiency and that cost enormously. And we have to look now after the increases in parts. We have to -- look how can we work on material cost, getting the best and most efficient suppliers, which suppliers use the crisis to increase their efficiency and who lost efficiency position. That means for us, what are our decisions going forward. So these are, as I said, interesting negotiations looking for options and possibilities to [indiscernible] on the cost side of our products.
But last, but the most difficult part is tackling our fixed cost. First of all, get through the whole IT issue, use that -- for new IT systems to improve processes and, therefore, able to reduce the number of people involved in those processes. And thirdly -- and then secondly, go on the fixed cost side in areas where we have, at the moment, the idea that we are not efficient and we have those areas and please understand that we only talk about it once we have the solution fixed and debated with our [indiscernible] council that we then go forward and reduce our headcount in those areas. We have a couple of initiatives underway, but not yet in a state that we can publicly announce it.
On material, I think I covered that, yes. I hope I answered all questions -- here. If I lost track of one question then...
You hit those two -- the other one was basically best margins trucks, I guess, are coming with lower margins. So how do we think about this margin solution we get as [ usual to your ] order backlog?
The [ best ] trucks come with a good margin. If I'm too positive here, that is bad for the sales process. So I would say they are okay.
The next question comes from [ Georgina Montorsi ] from Bank of America. And this would be the last one .
Just a quick one on the guidance. You've tweaked the guidance for financial services, but maintained a group level unchanged. So what is -- how are we thinking about the dynamics? What is compensating the weakness in financial services? Or how should we think about group?
Yes. Georgina, thanks a lot for your question. I mean we -- that's correct, we had to take down the guidance for the new business. This has actually two reasons. The one is that the ramp-up in which we are still in after two years of that company is still going on. So we are not at this point in time, completely in a regular stage. We only took over that the last markets now in Europe in Q3, it was Turkey. And as you as well know, there is the ramp-up going on in France and in Europe, where we started contracting the first leases and financing transactions. And this is going -- that started later than it was planned. So a little bit of time basically is missing in order to contract new business.
And the other thing is, honestly, that we -- to a certain extent forward to be a little bit more selective in granting credit. So we have since actually always as well in the old company, a credit provisioning model in place, which is basically set by headquarters, so not by the regions or the market. So it's sort of an unbiased one, which takes into account historical data as well as economic outlook. And when we are basically looking at that, we can say that cost of risk is on a very low level, and this is driven by the high quality of the portfolio. And we actually like to maintain that high quality of the portfolio.
Ladies and gentlemen, thank you very much for your questions and for being with us today. Thank you very much, Martin and Claus for answering the questions, taking the time.
Now as always, IR remains at your disposal to answer any further questions you might have. We are looking forward to staying in contact with you. And now I think after a short break, we will continue with the press call, which will start at 10 minutes past 9 -- 10 minutes past 9 CET time. Thank you very much. Have a great day, and stay healthy. Thank you, and goodbye.