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.