Having dropped to third place in luxury car sales rankings behind German rivals BMW and Volkswagen's Audi in 2011, Daimler's premium car division Mercedes-Benz narrowed the gap in 2013 thanks to its redesigned vehicles, which also include new compact cars such as the A-Class sedan.
"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 taxes (EBIT) from ongoing business to "increase significantly" in 2014, based on improved profitability at its trucks and cars units.
Its shares were up 3.8 percent to 63.16 euros by 0930 GMT, putting them among the top gainers on Germany's blue-chip DAX index. They were lifted in part by a dividend increase to 2.25 euros a share from 2.20 euros.
The positive results appear to turn around a string of disappointing earnings overseen by the chief executive Dieter Zetsche, who was forced to scrap margin targets at Mercedes-Benz in late 2012.
The Stuttgart-based maker of cars and trucks reported fourth-quarter adjusted EBIT of 2.53 billion euros ($3.42 billion), above the 2.32 billion euros forecast by analysts in a Reuters poll.
Mercedes-Benz sales volumes in Europe and the United States rose, offsetting a slight decline in Daimler's German home market. Also, after a period of flagging sales, Mercedes-Benz's deliveries in China jumped 15 percent to 239,000 cars in 2013.
Profitability at Mercedes-Benz also improved, with the return on sales from ongoing operations widening to 8 percent in the quarter, up from 5.3 percent in the year-earlier period.
Marc-Rene Tonn, an autos analyst at M.M. Warburg said Daimler's results appeared to be solid, "There is no hair in the soup this time."
Mercedes-Benz may still have some way to catch up with profitability at BMW and Audi, however. In the third quarter, BMW's operating margin for its cars division was 9 percent, while Audi's was 9.4 percent.
EFFORTS PAYING OFF
Carmakers are generally upbeat about global sales this year. Worldwide, auto sales in 2014 are seen rising 3.4 percent, according to research firm IHS, while LMC Automotive sees an increase of 5 percent.
Premium carmakers are expected to benefit disproportionately from such growth, while the mass-market continues to struggle with overcapacity.
"We expect significant growth in all of our vehicle business units in 2014," Zetsche said, adding that he expected operating profit both the Mercedes-Benz Cars and Daimler Trucks divisions to be "significantly above" the previous year, when they saw earnings fall 6 percent and edge up 3 percent, respectively.
Group net profit for 2013 fell 36 percent to 1.67 billion euros due to the absence of a year-earlier gain from the sale of a stake in EADS, and due to increased investments for the rollout of the new C-Class model at four factories in 2014.
On a full-year basis, the return on sales at the Mercedes-Benz division also fell to 6.5 percent from 7.2 percent, but Daimler said the hefty investments in new products should start filter through to improve profitability in 2014.
"2013 was a year that we didn't begin particularly well, but which we ended very successfully. Our efforts paid off," Zetsche said.