By William Boston 

BERLIN -- Daimler AG reported sharply higher profit in the three months to the end of September, beating expectations as strong sales of its new E-class luxury model in China and sport-utility vehicles drove earnings at its flagship Mercedes-Benz cars.

Mercedes-Benz, the company's biggest division, saw continued strong demand for its luxury sedans in China, pushing sales higher and keeping Daimler on track to overtake rival BMW AG as the world's biggest premium car maker.

Net profit in the third quarter rose to EUR2.60 billion ($2.83 billion) from EUR2.39 billion the year before, while earnings before interest and taxes after special items, or EBIT, rose 10% to EUR4 billion. Revenue rose 4% to EUR38.6 billion as unit sales of its passenger cars jumped 11% to 565,564 in the three months to end-September.

Analysts cheered Daimler's solid results in the quarter, but shares fell nearly 2% to EUR64.76 in early trading as investors took profit in the absence of significant news and growing risks to future earnings.

"Daimler's turnaround of the Mercedes brand has been exceptional but we feel that this is well understood and leaves little room for positive surprises or indeed unrecognized earnings momentum," said Arndt Ellinghorst, analyst at Evercore ISI, a London-based brokerage.

Some of the risks include the potential impact on Daimler's European business from Brexit, the decision by U.K. voters to leave the European Union.

Bodo Uebber, Daimler's finance chief, said Mercedes sales in the U.K. were still strong, but a slight decline in September showed that the Brexit was "gradually becoming noticeable."

Mr. Uebber said Daimler is struggling with volatile currency markets. Through its hedging policies, Daimler is shielded against the post-Brexit decline of the British pound, but would face substantial currency losses in some emerging markets. Overall, he said, Daimler would post a slight gain on foreign exchange this year.

Daimler also faces rising capital expenditure as it invests heavily in a new technology and businesses to prepare for sweeping changes in the automotive industry.

At the Paris car show last month, Daimler unveiled plans for a subbrand of electric vehicles called EQ, and it is investing in new technology for self-driving cars and new digital services such as its MyTaxi cab-hailing app and Car2Go ride-sharing service to compete with new technology rivals such as Uber Technologies Inc.

Daimler Trucks, the company's second-largest business by revenue, is coming off record 2015 profit as sales and demand decline sharply in its core markets, dimming the outlook for 2017. The division issued a profit warning in May and has warned of job cuts.

Daimler Trucks revenue slipped 19% to EUR7.8 billion in the third quarter as unit sales slumped 24%, hit by economic turmoil in emerging markets, a slowdown in the U.S., and tougher market conditions for commercial vehicles in Europe.

Daimler confirmed its profit outlook for the full year, but slightly lowered its revenue forecast to about the same level as last year. The company anticipated growth in Western Europe and Asia, but expected declining revenue in North America as the U.S. market slows down.

"Daimler remains on track to achieve our earnings forecasts for the full year, despite volatile sales and finance markets," said Mr. Uebber told reporters.

The company expects EBIT to "increase slightly" in 2016, despite sharply lower earnings in the struggling truck division.

Revenue at Mercedes-Benz Cars rose 12% to EUR23.3 billion in the third quarter, and EBIT rose 23% to EUR2.7 billion, driven higher by "growing unit sales in the SUV segment and the market success of the E-class," the company said.

Write to William Boston at william.boston@wsj.com

 

(END) Dow Jones Newswires

October 22, 2016 02:48 ET (06:48 GMT)

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