Daimler warned that commodity prices may rise by more than it bargained for in coming months and maintained its full-year outlook after posting stronger than expected first-quarter operating profit.

Chief Financial Officer Bodo Uebber said the 700 million euros ($1.04 billion) Daimler had earmarked for additional raw material costs this year may prove insufficient.

I also expect that we will continue to see a very volatile exchange rate situation, Uebber told reporters during a conference call on Friday after Daimler published quarterly results.

He said Daimler has hedged 80 percent of its exposure to the U.S. dollar for this year to cushion the impact of exchange rate fluctuations.

Daimler affirmed its full-year outlook, saying it saw 2011 EBIT significantly up from last year. Analysts on average expect 2011 EBIT to advance 18 percent to 8.59 billion euros this year.

Daimler shares fell 2.13 percent to 51.96 euros by 0756 GMT, underperforming the STOXX Europe 600 Automobiles & Parts <.SXAP>, which was down 1.22 percent.

Some analysts said Daimler's results failed to reflect strength seen recently at rivals such as Volkswagen or Volvo .

Daimler continued to perform below its peer group, which makes it hard to see the stock outperforming, said Credit Suisse analyst Arndt Ellinghorst.

Daimler trades at 9.5 times estimated 12-month forward earnings, according to Thomson Reuters StarMine, below Volvo's multiple of 13.6 or BMW at 10.

Daimler's first-quarter earnings before interest and tax (EBIT) rose 71 percent to 2.03 billion euros, above the average analyst estimate of 1.99 billion euros in a Reuters poll.

CHINA DEMAND

Daimler's passenger car business beat expectations on the back of demand from emerging markets such as China -- now the world's largest car market. Daimler sold 82 percent more cars in the first three months of this year than a year earlier.

Global luxury car makers, from Volkswagen's Audi to BMW , have racked up eye-popping sales in China, where a growing army of super-rich is fuelling demand for everything from Gucci handbags to Rolls-Royce cars.

Uebber said he had no indication that demand in China would ease in coming months, adding he expected Daimler to grow faster than the market there.

Daimler expects unit sales of Mercedes-Benz branded cars to reach a record level of more than 1.2 million this year, helped among other by strong sales of its top-of-the-range S-Class model.

(Reporting by Maria Sheahan; Editing by Hans Peters)

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