Mercedes-Benz cut its annual sales guidance but otherwise reported quarterly earnings that weren't as bad as feared, boosting shares of European automakers.

Investors had braced for worse after a slew of negative headlines from the German car industry, including a profit warning last month from rival BMW.

Mercedes said Tuesday it expected its unit sales and revenue this year to come in slightly below last year's numbers, having previously guided that they'd be flat. The deterioration is driven by China, where the company's sales fell 30% in the second quarter.

But Mercedes didn't adjust its profit guidance, pointing to a projected increase in production of flagship models such as the new S-class in the fourth quarter. Underlying operating profit in the second quarter also came in stronger than analysts expected-an early sign that cost-cutting efforts are bearing fruit.

Mercedes stock rose as much as 5% in early trading before paring its gains. The news also lifted shares in BMW, Volkswagen and Porsche.