2nd UPDATE: Daimler Expects Mercedes-Benz 2Q EBIT To Surpass 1Q

Daimler AG (DAI.XE) Friday said it expects earnings before interest and taxes, or EBIT, for its Mercedes-Benz Cars division to be higher than the first quarter's EUR806 million, and it detailed the timeframe for the division's 10% return-on-sales.

"From today's perspective, assuming there is no further downturn of the world economy, we expect Mercedes-Benz Cars to achieve its targeted return on sales of 10% in the second half of 2012 and to maintain it as of full-year 2013," Chief Executive Dieter Zetsche said in a statement during an investor day in Beijing.

Zetsche had announced the 10% return on sales target for Mercedes-Benz Cars before the financial crisis hit, but shied away from providing a detailed timeline during the economic turmoil. The recovery in the luxury car segment, however, has gained traction in recent months.

In April, the Mercedes-Benz Cars unit, which comprises the core Mercdes-Benz, Smart and Maybach nameplates, posted a 12% vehicle sales rise year-on-year, "and further substantial growth is also indicated for May and June."

"There are additional significant advantages in the second quarter from better pricing, a better product mix and the optimized cost structure. Return on sales in the second quarter could therefore also be higher than the first quarter's 7%," the Stuttgart-based firm said.

Zetsche noted, however, that the half-year results must not extrapolated for the full-year 2010 because the company plans to ramp up research and development for green technology and will have higher capital expenditure for new vehicle models, which will dent earnings.

"Nonetheless, I can say that Mercedes-Benz Cars' EBIT for the year 2010 will be at the upper end of our forecast of (between) EUR2.5 billion (and) EUR3 billion," Zetsche said.

Sanford Bernstein analyst Max Warburton said Daimler's core unit is likely to beat this target. "More important, we find the stock's cyclical recovery potential and longer term prospects very appealing," Warburton said in a note, adding that "Daimler contains arguably the two highest quality assets in the European auto sector - the world's largest heavy truck producer and the world's leading premium auto brand." Warburton rates Daimler stock as outperform with a price target of EUR52.

At 0814 GMT, Daimler shares traded up EUR0.27, or 0.7% at EUR40.19, in line with a 0.5% rise of the DAX blue chip index.

Daimler said it anticipates selling more than 300,000 Mercedes-Benz cars in China in 2015, as the country increasingly becomes the center of gravity in the world auto market.

"China is becoming the more and more important for Daimler," Zetsche said. "This year, China has already become Mercedes-Benz Cars' third-largest market after Germany and the U.S."

This year, Mercedes-Benz Cars expects to sell more than 100,000 vehicles in China, up from about 67,000 in 2009.

Underscoring the growing importance of the Chinese market, Daimler for the first time organized an investor day there and staged the eagerly awaited first public appearance of Daimler's new executive board member Wolfgang Bernhard as part of the event.

Bernhard, a confidant of CEO Zetsche who earned a reputation as a tough cost cutter during previous stints at Daimler and at Volkswagen AG (VOW.XE) was named executive board member responsible for production and procurement in February.

"While his manner may not be quite as aggressive and outspoken as in the past, it's clear he is already energetically pursuing multiple cost and efficiency programs," Warburton said.

-By Christoph Rauwald and Sarah Sloat, Dow Jones Newswires; [phone]; [e-mail]