UPDATE 2-Resurgent Mercedes eyes 10 pct margin


(Adds comments from conference call, shares, market reaction)

By Michael Shields

FRANKFURT, July 25 (Reuters) - DaimlerChrysler AG's premium Mercedes Car Group has set its sights on a 10 percent operating margin by 2010 after tough streamlining helped its second-quarter profit advance by nearly three quarters.

Cost-cutting and a rich model mix that boosted revenue per unit sold saw Mercedes earnings before interest and tax (EBIT) gain 74 percent to 1.2 billion euros ($1.66 billion), the world's fifth-biggest carmaker said, beating expectations.

Better-than-expected EBIT at the group's market-leading trucks business despite a sharp market downturn in North America and Japan also impressed the market on Wednesday.

"The numbers are solid. They are above expectations and the margins have also improved," said Stephan Thomas, a fund manager at Frankfurt Trust. "They have done a good job. I am pleased."

The preliminary figures showed revenue flat at 12.56 billion euros despite a dip in unit sales, with the Mercedes EBIT margin nearing 9.6 percent in the quarter, easily beating its minimum 7 percent target for 2007.

Analysts polled by Reuters had expected a Mercedes EBIT of 1.01 billion euros in the quarter.

DaimlerChrysler will not release full second-quarter results until Aug. 29 while it moves forward with the sale of a majority stake in U.S. arm Chrysler Group to Cerberus Capital Management LP [CBS.UL].


EBIT at the trucks business posted a surprise increase of 3 percent to 601 million euros, although this was flattered by a 68 million euro divestment gain.

"The thing that really surprised me is that after the disappointments we had at trucks and at (world number two truckmaker) Volvo -- and given that their U.S. truck volume fell by nearly half -- the fact that they barely moved the earnings needle down...is very, very good indeed," said analyst Stephen Cheetham at Sanford C Bernstein.

Heavy truck sales in the U.S. and Japanese markets have collapsed this year because new clean-air rules pulled demand forward into 2006.

Trucks division head Andreas Renschler reiterated that the U.S. market could drop 40 percent this year but said Daimler would still make money there thanks to its efficiency drive.

DaimlerChrysler shares closed up 1.8 percent at 66.93 euros. They trade at about 13.7 times estimated 2008 earnings per share, a sharp premium to arch-rival BMW's 10.4 times, according to Reuters Estimates data.

Mercedes Car Group -- which includes the premium Mercedes-Benz, luxury Maybach and Smart minicar brands -- had generated a 6.6 percent operating margin in the first quarter, a period which it had signalled would be weak.

With the premium segment set to outpace the expected 2.5 percent overall growth in global car markets, Mercedes will enjoy good growth in Asia, emerging markets and even existing markets, Daimler Chief Executive Dieter Zetsche told a conference call.

Efficiency improvements will also polish Mercedes margins, which he said would hit 10 percent by 2010 at the latest even though it faces huge expense to develop cleaner engines.

Despite recurring questions about how the deal's financing will fare given current debt market turbulence, Zetsche reiterated he expected the deal to close in the third quarter.

DaimlerChrysler forecast in May that 2007 group EBIT would rise to 7 billion euros excluding the impact from selling Chrysler, a transaction that breaks up a failed $36 billion transatlantic car merger struck in 1998. (Additional reporting by Mantik Kusjanto



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