* 2012 EBIT from ongoing operations falls 10 pct
* Sees Q1 Mercedes EBIT margin below 5.26 pct in Q4
* Sees second-half earnings higher than first
* Dividend funded by cash reserves, EADS stake sale
* Shares up 2.7 pct, outpacing rivals
(Adds comments from management, analyst)
By Christiaan Hetzner
STUTTGART, Germany, Feb 7 German automaker
Daimler said it expected flat earnings in 2013 as a
persistently weak market and an ageing model line-up sap demand
for its luxury cars and trucks until the second half of the
Premium car brands like Daimler's Mercedes or Volkswagen's
Audi have held up better in an ailing European
market than mass-market competitors, such as loss-making Peugeot
But some investors have begun to lose patience with a
Daimler management team that has failed repeatedly to deliver
the same profitability as peers BMW and Audi.
Daimler executives say profits would have been better were
it not for the underperformance of Mercedes in China, a vital
growth market where its two local rivals have been running
circles around it.
Daimler forecast 2013 earnings before interest and tax
(EBIT) from its ongoing business close to last year's 8.1
billion euros, down 10 percent from 2011 and in line with a
consensus estimate from analysts.
The target implies a 200-million-euro hit from exchange rate
effects, finance chief Bodo Uebber said - Daimler anticipates
the euro will continue to trade at around $1.35.
"For market and model-cycle reasons, the first quarter is
likely to be the weakest of the year," said Uebber.
An upcoming revamp of its flagship Mercedes S-Class saloon,
due mid-year, and roughly 600 million euros in Mercedes cost
savings, would boost second-half profit, the company said.
In 2014 and following years, said Uebber, the company
expects higher operating profit at all its automotive divisions
and for the group.
Shares in Daimler rose 2.7 percent to 44.16 euros by 1537
GMT, outperforming both its peers in the European auto sector
and other German blue-chip shares.
"The forecast is not bad given expectations and at least
there was no disappointment like so often in the past," said
Metzler Bank analyst Juergen Pieper.
He said a planned dividend payment of 2.20 euros per share
was "a bit of a positive surprise, since it looked as if it may
be lowered to around 2 euros".
The earnings were also slightly better than expected, said
Pieper, although that was more to do with Daimler businesses
outside the core Mercedes and Trucks divisions.
The group had also forecast stable earnings this time last
year, but ended up warning in October that it would miss its
profit target of 9 billion euros by about 1 billion.
It was also forced to postpone 2013 EBIT profit margin
targets of 8 percent at Daimler Trucks and 10 percent at
Mercedes. That second goal had been set back in 2010.
Bottom-line income only rose last year thanks to a one-off
gain in the fourth quarter from the sale of half its EADS
stake, which it needed together with cash reserves in
order to afford its unchanged dividend.
Chief Executive Dieter Zetsche told analysts the Mercedes
profit margin in the first three months of the year would show a
"lower running rate" than the 5.26 percent achieved in the
fourth quarter of last year.
Analysts have repeatedly questioned whether Mercedes can
achieve its goal of overtaking its two German rivals to become
the world's largest luxury carmaker by 2020 so long as its sales
growth in China continues to lag theirs.
Zetsche said shareholders would see next year the target was
realistic, when the company expects new cars like the Mercedes
GLA compact SUV and the revamped C-Class to boost profits.
After conceding in July that poor growth in China was more
than a temporary blip, Daimler has moved aggressively to improve
its fortunes there and aims to increase annual sales by half to
300,000 vehicles in 2015.
In December, it brought in a new China sales chief,
appointed a new management board member responsible for its
Chinese operations and combined two competing sales channels for
locally built and imported cars.
On Friday, Daimler went a step further and bought 12 percent
of its Chinese joint venture partner BAIC Motor in a deal that
values the Beijing-based company at around 5.3 billion euros
ahead of its planned stock offering.
Sales in China rebounded last month, growing over 15 percent
following a steep drop in December. But Mercedes is outsold
there two to one by Audi, while the BMW brand's sales volumes in
the country were 50 percent higher last year.
Bernstein analyst Max Warburton, who already predicted last
June that Daimler would have to downgrade its profit forecast,
"We think it's reasonable to expect Q1 to be the bottom -
but we fear the extent of the Mercedes margin slump may surprise
negatively and the pace of recovery is unclear," he wrote.
"Closing the gap on BMW/Audi margins - and getting to a
place where it can generate good cash - looks a long, long way
off," he concluded.
($1 = 0.7387 euros)
(Reporting by Christiaan Hetzner; Editing by Maria Sheahan and