BMW quarterly profit drops for first time in 3 years
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FRANKFURT -- BMW reported its first drop in quarterly profit in almost three years on increased spending on new models and pricing pressure.
Second-quarter earnings before interest and taxes (EBIT) declined 19 percent to 2.27 billion euros ($2.79 billion), the company said in a statement today.
BMW forecast an automotive profit margin for the full year that's below the level from the first half and warned that the European debt crisis could cause "the global economic climate to cloud over further."
Second-quarter earnings were burdened by higher personnel costs, increased spending on development and "intense market competition," the company said.
Management appears "very cautious for the second half," said Marc-Rene Tonn, an analyst with M.M. Warburg in Hamburg. "This indicates that the margins that we have seen over the past quarters are probably the upper end of what is achievable. Growth is still there but not at the same price levels."
Sales for the quarter climbed 7.3 percent to 19.2 billion euros, BMW said today.
Second-quarter EBIT at BMW's carmaking division declined 16 percent from a year earlier to 2.02 billion euros, with the margin at 11.6 percent of sales. That compares with margins of 11.6 percent at Volkswagen's Audi division, the world's second-largest luxury-car brand after BMW, and 8.6 percent at third-ranked Daimler unit Mercedes-Benz.
"We are monitoring developments very closely in various markets," CEO Norbert Reithofer said in the statement. "The BMW group has a flexible production network and, as a premium manufacturer, is focused on maintaining profitable growth."
Car prices down
BMW faces unfavorable business conditions in some parts of Europe, in particular the region's southern countries, the automaker said in a statement.
BMW's car prices are 1 percent to 1.5 percent below year-ago levels, Chief Financial Officer Friedrich Eichiner said on a call with analysts. The company doesn't expect a further decline, with Europe stable and possible increases elsewhere, the CFO said. "We need our new products to maintain pricing," he said.
"Tough pricing" has continued in the shrinking southern European auto markets, and the company has had to raise incentives to stabilize the dealer network, Eichiner said.
BMW is expected to have benefited from the euro's weakening against other currencies, being the German luxury carmaker with the biggest exposure to exchange rate fluctuations.
"With BMW having around 11.4 billion euros in 2012 net transaction exposure to U.S. dollar/renminbi on our estimates, this could offer a solid tailwind for 2012-13 in our view," wrote S&P Equity Research analyst Marnie Cohen before publication of BMW's results.
Daimler's Mercedes-Benz cars business had a 317 million euro gain related to foreign exchange effects in the first half -- boosting its quarterly margin by 1.6 percentage points -- and Audi saw its first-half results lifted by 300 million to 400 million euros.
Record sales forecast
BMW reiterated goals this year of beating the 2011 delivery figure of 1.67 million vehicles, with sales records at its BMW, Mini and Rolls-Royce car brands, and increasing pretax profit from last year's 7.38 billion euros.
The group plans on a sales boost from revamped versions of the 7-series sedan and X1 small SUV.
BMW is expanding its global reach by expanding capacity in the United States and in China and discussing satellite production for its Mini brand at Mitsubishi's Nedcar in the Netherlands.
Plans for a new plant in Brazil are on hold as negotiations with the local government on tariff regulations have run into difficulty.
The German company has teamed up with Toyota Motor Corp. to cooperate on hybrid powertrains and the development of fuel cells to power vehicles, tapping into its Japanese partner's experience with the Prius model. The automakers have also agreed to collaborate on sports cars and lightweight materials.
BMW has a separate joint venture with Wiesbaden, Germany-based SGL Group to make carbon fiber for use in lighter car bodies. The body of BMW's electric-powered i3 city car, scheduled to reach the showrooms late next year, will be made of carbon fiber.
Bloomberg, Reuters and Paul McVeigh contributed to this report
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