* Bears sceptical, see structural problems weighing mid-term

* Shares closed 1.8 pct lower on Wednesday after Q2 numbers

FRANKFURT - German luxury automaker Daimler released consensus-beating second-quarter results on Wednesday, but analysts are split on whether the figures signal the beginning of a turnaround for the carmaker or if its balance sheet problems will continue.

Daimler (DAIGn.DE) said it expects a gradual improvement in the group's operating profitability over the course of this year after its billion euro loss beat expectations. [ID:nLT428157]

Chief Executive Dieter Zetsche suggested that the company could see a positive surprise over the course of the year, although he warned late in June that demand would recover only very gradually starting in 2010.

Analysts agree that Daimler exceeded expectations for this round, but are clearly divided over whether the carmaker can surprise in upcoming quarters.


Commerzbank analyst Daniel Schwarz kept his buy rating on the stock and lifted his price target to 37 euros from 34 euros.

Daimler remains our preferred stock in the sector, with substantial upside potential in a recovery scenario, while a strong balance sheet limits downside risk in a (possible) weaker-than-expected 2010, Schwarz said.

Schwarz said despite the quarterly operating loss, Daimler's balance sheet is among the strongest in the auto industry and says it would be considered under-geared in most other industries.

M.M. Warburg analyst Marc-Rene Tonn reiterated his buy rating and said he assumes investors are willing to price in medium-term potential returns into their models, banking on a turnaround for Daimler.

Tonn sees Daimler posting a positive free cash flow (FCF) by the end of 2009: Now that the further reduction of car inventories in the second-quarter allowed a positive free-cash flow of 1.4 billion euros, it seems reasonable to expect at least a positive FCF for the full year.

Analysts at Nomura said in their buy rating reiteration that Daimler management's was sending a strong signal when it pointed to a sequential recovery.

While Daimler was initially slow to react to the current industry downturn, their determined approach to inventory reduction and cost-cutting is now more than compensating for (their) initial lethargy, he said.


BHF Bank analyst Aleksej Wunrau, was one of several analysts who pointed to concerns about lingering structural problems.

Wunrau sees cash flows slowing over the second half of 2009 as Daimler has already gone through most of its destocking.

Given the missing signals of a comprehensive restructuring program, the mismatch in capacity utilization looks set to persist until at least 2012, when Daimler will start its compact car initiative, Wunrau said, keeping his reduce rating.

He sees suboptimal earnings until then.

DZ Bank analyst Michael Punzet also affirmed his sell rating saying that he was sceptical about the possibility for a strong sales development in the second half of 2009.

WestLB analyst Adam Hull maintained his brokerage's sell rating and said Daimler's Mercedes unit might remain a problem.

We remain concerned about Daimler's weak underlying cash margin and whilst there are further savings to come, we believe that some of the mix and price issues at Mercedes are structural, Hull said.

Hull added he sees Daimler stronger cash flow numbers in the second quarter as a oneoff event.

Although it suggests good inventory management, it also reflects very weak end markets. We expect much of this inflow to be reversed in 2010-12, Hull said. (Reporting by Tyler Sitte; Editing by Richard Hubbard)