Daimler expected to post Q4 earnings surge on new product tailwind

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FRANKFURT (Reuters) -- Daimler is set to post a surge in fourth-quarter profit on Thursday as its rejuvenated Mercedes-Benz model range helps CEO Dieter Zetsche to turn around a legacy of profit warnings.

The company is expected to report its adjusted earnings before interest and tax (EBIT) rose 34 percent to 2.32 billion euros ($3.14 billion) in the fourth quarter, a Reuters poll showed.

Daimler's Mercedes-Benz cars unit is enjoying a sweet spot in its product cycle. Mercedes launched a refreshed E class and an all-new S class flagship sedan in 2013 and will roll out a new version of its best-selling model, the C class, this year.

After falling to third place in the luxury-sales rankings behind BMW and Volkswagen's Audi in 2011, Daimler narrowed the gap in 2013 thanks to its redesigned vehicles.

In the twelve months Daimler's shares have risen nearly 40 percent and the stock is now trading on a forward price-to-earnings ratio of 10.6, compared with 9.9 at BMW and 7.9 at Volkswagen, the parent company of Audi.

Scrapped targets

Zetsche's goal is for Daimler to become the world's biggest premium carmaker by the end of the decade. But he was forced to scrap margin targets at Mercedes-Benz Cars in late 2012.

Earnings goals have been repeatedly scrapped as Mercedes failed to match rivals' scale and efficiency in smaller cars, or their advances in China.

Daimler's supervisory board last year agreed to extend Zetsche's contract by three years instead of an expected five, to soothe investor concerns over his failure to meet guidance and keep up with rivals.

"We continue to believe that the majority of good Mercedes Cars news is priced into the stock. Valuation and lack of earnings momentum leave limited upside," analysts at ISI Global said in a note, adding that they believed Daimler results would be solid and even beat consensus expectations.

Worker surplus

"It remains a fact that Mercedes Cars de facto employs 40 percent more workers to sell 20 percent fewer cars compared to BMW," ISI said.

Daimler has also suffered problems at its sales organization in China, causing it to fall behind BMW and Audi in the world's largest car market.

In 2013, deliveries of Mercedes cars rose 11 percent to 1.46 million autos, lagging BMW, which sold 1.65 million BMW branded cars, up 7.5 percent on the year-earlier period. Audi's vehicle sales surge 18 percent to 1.57 million cars in the same period.

Lagging profitability

Daimler also lags its rivals in terms of profitability. In the third quarter, BMW's EBIT margin for its cars division was at 9 percent, compared with 9.4 percent at Audi and 7.3 percent at Daimler's Mercedes-Benz division.

Automakers are upbeat about global sales this year.

Global auto sales in 2014 may rise 3.4 percent, according to research firm IHS, while LMC Automotive sees an increase of 5 percent. Premium automakers are expected to benefit disproportionately from such growth.

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