Mercedes-Benz maps out road to 10% EBIT margin aim

Daimler's passenger car division Mercedes-Benz Cars expects operating profit to reach the upper end of its forecast this year and aims to boost profitability to 10 percent of sales by the second half of 2012.

Daimler said on Friday Mercedes should earn more this quarter than in the first quarter and might even exceed the 7 percent operating margin in the three months to March thanks, in part, to "considerable" sales growth in May and June.

Higher research and development expenses to reduce its fleet's carbon emissions and costs to develop new models mean second-half earnings will likely fall short of the first half.

"Nevertheless, I can say that EBIT at Mercedes-Benz Cars will be at the upper end of our forecasted 2.5-3.0 billion euros," Daimler chief executive Dieter Zetsche said in a statement following an investor presentation in Beijing.

The division posted earnings before interest and tax (EBIT) of 806 million euros ($987 million) in the first quarter.

The German carmaker anticipates it can reach its profitability targets in the next 24 months thanks to efficiency gains, a recovery in markets and a strong model pipeline.

"Assuming there is no further global economic slump, we expect that Mercedes-Benz Cars can meet its return on sales target of 10 percent in the second half of 2012 and sustainably reach it starting in the 2013 business year," Zetsche said.

Bernstein analyst Max Warburton said the goal, first set five years ago, previously seemed unrealistic since Mercedes never got beyond the 2007 peak of 9.1 percent and R&D headwinds from stricter CO2 legislation were only getting worse.

"Zetsche renewed Mercedes' 10 percent margin target, which a year ago would have seemed wildly ambitious but, with 7 percent-plus margins likely in H1 2010, (it) no longer looks so crazy," he wrote on Friday, adding Mercedes would likely exceed 3 billion euros in EBIT this year.