Daimler sees currency effects tempering Mercedes revenue growth

FRANKFURT (Reuters) - Daimler <DAIGn.DE> said the strong euro would dampen revenue growth at Mercedes-Benz Cars this year, after currency effects and the absence of one-off gains pushed the group's first-quarter operating profit down 12 percent.

Daimler's Chief Financial Officer Bodo Uebber said the company now expected currency burdens related to the strong euro to cause a hit of more than 1 billion euros this year, even though the company stuck to its full-year earnings targets.

Foreign exchange effects also hit earnings at French rival and alliance partner Renault <RENA.PA> and auto supplier Continental <CONG.DE> which also reported first-quarter earnings on Friday.

Daimler said the euro's strength relative to the renminbi, Turkish lira, British pound and Yen caused them to revise their estimate for foreign exchange impact upwards, albeit not to the extent that it could force a change in earnings forecast for the year.

"We believe the company is well on track to meet its 2018 outlook for a slight increase in earnings before interest and taxes (EBIT)," analyst Arndt Ellinghorst said.

Analysts at Evercore ISI said in a note on Friday that Daimler increased estimates for raw material headwinds to 500 million euros in 2018, up from 300 million, and now sees foreign exchange causing a 1.3 billion euros hit.

Daimler's group EBIT dropped to 3.34 billion euros (2.90 billion pounds) in the three months to March, below analyst expectations.

Daimler shares were trading 1.08 percent higher at 0730 GMT, underperforming the STOXX Europe 600 <.SXAP> index, which was up 1.2 percent.

Daimler's earnings in the year-earlier quarter were flattered by the reversal of an impairment of Daimler's equity investment in BAIC Motor Corp <1958.HK> and the valuation of a stake in map maker HERE.

The return on sales at its Mercedes-Benz Cars division rose to 9 percent in the first quarter, from 8.9 percent a year earlier, thanks to a 5 percent rise in car sales to 594,299 vehicles, the company's strongest ever quarter for luxury car sales.

The profitability of its luxury cars division was dented by higher costs for revaluing the leasing portfolio in Germany, and the costs of launching the compact Mercedes-Benz A-Class.

Excluding earnings from its China joint venture, the Mercedes margin was 7.6 percent, up from 6.8 percent in the same quarter last year, analysts said.

Although Mercedes-Benz expects to continue producing new sales records, revenue growth will be impacted going forward, the Stuttgart-based carmaker said.

"At Mercedes-Benz Cars, the expected exchange rate developments and lifecycle effects will dampen the development of revenue, so the division is expected to post full-year revenue at the high level of 2017," Daimler said.

(Reporting by Edward Taylor; Editing by Maria Sheahan and Jane Merriman)