UPDATE 3-DaimlerChrysler sees profits stepping up a gear


(Adds detail from news conference, fresh analyst comment)

By Madeline Chambers and Nick Tattersall

SINDELFINGEN, Germany, Feb 20 (Reuters) - DaimlerChrysler said on Thursday further recovery at its U.S. Chrysler unit would help the group lift profits this year, provided economic conditions remain stable in its main markets.

The world's fifth-biggest carmaker, two thirds of the way through a three-year turnaround plan at Chrysler, said putting a figure on its goal would be irresponsible given probable further political and macroeconomic uncertainty.

"DaimlerChrysler plans to achieve higher earnings this year than in 2002. However, a precondition for this anticipated increase is that conditions remain stable in the most important markets," the company said in a statement.

At 1325 GMT the shares were up 3.12 percent at 28.44 euros, outperforming the European sector , up 2.22 percent.

"This is quite a clear statement given the current danger for giving outlooks and it is more than many investors had expected," said Georg Stuerzer, an analyst at HVB.

By contrast, Europe's biggest carmaker VW this week gave no outlook after posting a 10 percent drop in 2002 profit.

Daimler warned last year it may meet an adjusted operating profit goal of 8.5 billion to 9.5 billion euros ($10.2 billion) later than 2003, the date set two years ago.

"It would be irresponsible to give a very detailed prognosis for the future outlook," Chief Executive Juergen Schrempp said at a press conference. He noted there was no sign that political tensions between Germany and the U.S. over Iraq were hitting its business on either side of the Atlantic.

Daimler has also said pension costs will rise by 700 million euros in 2003 due to recent stock market falls.

Earlier this month the company posted an adjusted operating profit of 1.173 billion euros for the fourth quarter, bringing its adjusted operating profit for 2002 to 5.8 billion euros.


The maker of cars, trucks and buses said it aimed for sales of 151 billion euros this year, up one percent from 2002, and 163 billion in 2005, with the biggest gains in Asia.

Weak macroeconomic conditions and subdued consumer sentiment have dampened demand for cars in European carmakers' most important markets -- the U.S. and western Europe. Pricing pressure and incentives are also denting revenues and profits.

Chrysler posted fourth quarter operating profit of 77 million euros, implying slowing momentum from previous quarters.

"Chrysler's (fourth quarter) marketing costs were almost 24 percent of revenues versus 16.3 percent in the prior quarter, although the selling rate was strong. That's why Chrysler barely made money," said Morgan Stanley analyst Adam Jonas.

Some analysts also said Chrysler may have made some provisions to avoid having too high a basis for this year.

Chrysler reiterated a two-year old target of a two billion euro operating profit for this year, as it seeks to slash yet more costs to offset weak demand and low pricing. It is banking on new models to help revive its fortunes further, after the business broke even sooner than it had predicted.

"We are optimistic and know what we are capable of internally (on costs)," Chrysler chief Dieter Zetsche said.

The overhaul in the United States includes a 20 percent cut in Chrysler's workforce, price reductions from suppliers and greater cost savings at the group's Mercedes unit and its Japanese partner Mitsubishi Motors Corp .

Schrempp said parts and platform sharing and joint marketing activities between the group's businesses had led to "billions of euros" of savings, although he declined to name a figure.

Some analysts were disappointed with Mercedes' performance in the fourth quarter and the company said profits, revenues and unit sales would be flat this year at the business, which has been the main earnings generator in recent years.

"We would have expected the profit margin to have been a bit better in the fourth quarter especially with the new E-Class on the market," said Deutsche Bank analyst Lars Ziehn.


Analysts worry that margins will deteriorate over the next year until investment in a range of new luxury cars starts to pay off, a factor also hitting domestic rival BMW .

Daimler confirmed talks on a trucks deal with China's FAW had failed, leaving the group still seeking a partner to gain a foothold in the world's fastest-growing trucks market.

DaimlerChrysler stock has fallen about 11 percent so far this year, in line with the European sector. The stock has lost about two thirds of its value since the 1998 merger between Daimler-Benz and Chrysler was announced.

Investors cite concern that Deutsche Bank , in the process of unwinding its industrial holdings, may sell some or all of its 12 percent stake as being a cap on the share price.



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