Daimler forecast a significant increase in profit this year as strong sales of its new luxury Mercedes-Benz models, such as the S-Class limousine, help it shake off past earnings disappointments. Having dropped to third place in luxury car sales rankings in 2011 behind German rivals BMW and Volkswagen's Audi, Daimler's premium car division narrowed the gap in 2013 thanks to its redesigned vehicles, which also include new compact cars such as the A-Class sedan. Mercedes-Benz sales in Europe and the United States rose last year, offsetting a slight decline in Daimler's German home market, whilst deliveries in China jumped 15 percent. "The numbers are good, outlook is good, it's all good," Metzler Bank analyst Juergen Pieper said. "Daimler came off its high horse, realised they were no longer in front and began to fix things." Daimler said on Thursday it expected group earnings before interest and tax (EBIT) from ongoing business to "increase significantly" in 2014, based on improved profitability at its trucks and cars units which also have a rejuvenated range. The results contrast with a string of disappointing earnings under the stewardship of Chief Executive Dieter Zetsche, who was forced to scrap margin targets at Mercedes-Benz in late 2012, and later had his contract extension curtailed. "2013 was a year that we didn't begin particularly well, but which we ended very successfully. Our efforts paid off," Zetsche said. Improving Margins Stuttgart-based Daimler reported a 45 percent rise in fourth-quarter adjusted group EBIT to 2.53 billion euros ($3.42 billion), above the 2.32 billion euros forecast by analysts in a Reuters poll. Profitability at Mercedes-Benz Cars improved thanks to the range of fresh new cars including the A- and B-Class compact cars, helping to lift the division's return on sales from ongoing operations to 8 percent in the quarter, up from 5.3 percent in the year-earlier period. The company aims to increase that to 10 percent in the medium term. Daimler shares were up 3.7 percent to 63.11 euros by 1214 GMT, making them the top gainers on Germany's blue-chip DAX index, lifted in part due to a dividend increase to 2.25 euros, up from 2.20 euros a share. Analysts cautioned that there was limited upside potential for the stock given its recent outperformance and the fact that profit margins at Mercedes-Benz still lag behind rivals. In the past twelve months, Daimler's shares have risen more than 40 percent and the stock is now trading on a forward price-to-earnings ratio of 10.6, compared with 9.9 at Bavarian rival BMW and 7.9 at Volkswagen. Bernstein Research analyst Max Warburton said while Mercedes would probably deliver sales growth this year, its margin was unlikely to significantly exceed 8 percent. BMW and Audi, both of which have yet to publish fourth-quarter results, last reported a quarterly automotive operating margin of 9 and 9.4 percent, respectively. Carmakers are generally upbeat about sales this year. Worldwide, auto sales in 2014 are seen rising 3.4 percent, according to research firm IHS. Premium carmakers are expected to benefit disproportionately from such growth. Daimler said around 130,000 employees will receive a bonus of 500 euros and a profit sharing payment of 2,541 euros. (Reuters)