(Adds detail from speech, shares, trader comment)
By Nick Tattersall
MUNICH, March 25 (Reuters) - German trucks and engineering group MAN said on Tuesday it had started the year with a slight increase in sales but a drop in new orders, hit by weak business in its main domestic market.
MAN said new orders for the first two months of the year had fallen five percent to 2.205 billion euros ($2.35 billion), with the weakest activity in Germany, although group sales rose three percent to 1.969 billion.
"Taking the group as a whole, our budgeting envisages stagnating business volumes compared with 2002," MAN Chief Executive Rudolf Rupprecht told a news conference. "We nevertheless anticipate a sustained improvement in earnings."
The industrial group, which supplied the diesel engines that power the QE2 cruise ship as well as the booster casings for the ARIANE 5 space rocket, is hoping its recovering commercial vehicles business will drive group profits higher this year.
Rupprecht cautioned that the extent of the earnings rise would depend on the timing and momentum of an economic upturn, noting that forecasts by economic research experts had been consistently unreliable over the past two years.
The company's stock, which has outperformed the DJ European industrial goods index by 13 percent since the start of the year, was down four percent by 0907 GMT, compared with a 1.6 percent fall by the European sector.
"MAN is coming under pressure after its outlook looked weak," said a trader at a major German bank.
"The fact that orders fell five percent at the start of the year also looks bad."
The group managed to post a slight rise in pre-tax profit to 219 million euros last year, thanks largely to cost-cutting and a tight rein on investment spending, but all of its businesses have been pummelled by the weak economy.
It slashed net debt by around a quarter to 261 million euros and cut overall investment spending by over 20 percent. It is aiming to cut 1,000 jobs this year as part of its ongoing cost-cutting and plans to keep investments stable.
Rupprecht said the group would still fall "some way short" of its targets of a five percent return on sales and 15 percent return on capital this year, although it would come near to those figures in 2004.