MUNICH -- BMW reported a 21 percent jump in first-quarter profit as stronger demand in the U.S. and Europe for models such as the X5 SUV offset slowing demand in China.
Earnings before interest and taxes increased to 2.52 billion euros ($2.83 billion) from 2.09 billion a year earlier, BMW said today in a statement. Revenue jumped 15 percent to 20.9 billion euros.
BMW said its automotive EBIT margin was 9.5 percent in the quarter, remaining at a similar level to the year-earlier quarter and at the upper end of its target range of between 8 percent and 10 percent, thanks to record sales of high-margin SUVs in the quarter.
By contrast, the quarterly return on sales at Daimler's Mercedes-Benz Cars jumped to 9.2 percent from 7 percent a year ago, while Audi's operating margin slipped to 9.7 percent from 10.1 percent.
The performance may represent a high-water mark for this year as BMW's most lucrative sedans age and China's once-hot car market expands more slowly. The margin "may be as good as it can get," Michael Raab, an analyst at Kepler Cheuvreux in Frankfurt, said in a report. BMW faces headwinds the rest of this year as it spends money to revamp the top-of-the-line 7-series sedan and sales of the high-margin model's older version fall, he said
Juergen Pieper, a Frankfurt-based analyst at Bankhaus Metzler, said: “Some of the profit jump will have been the result of currency tailwinds. Unchanged profitability at the automotive unit indicates BMW’s core business is growing slowly. While there is growth, it’s not as fast as at Daimler.”
BMW said pretax-profit growth in the quarter was held back by interest-rate and commodity derivatives and by a drop in earnings contributions from its Chinese joint venture because of factory retool costs and increased competition in the country.
The company has cut production in China amid a market slowdown that has hit premium carmakers harder than other players, as an anti-corruption push and a slowing economy dampen demand for luxury cars.
Chief Financial Officer Friedrich Eichiner said BMW had avoided pushing sales in a falling market and had opted to cut back production instead, as a way to strike a better balance between supply and demand.
China, the world's largest auto market, has seen the pace of sales slow from double-digit growth levels to about 7 percent this year, forcing BMW to compensate dealers who are struggling to shift an aging fleet of vehicles.
First-quarter group deliveries in the country rose 6.4 percent, slowing from a 17 percent jump for all of 2014. "Competition in China is intense, which is noticeably putting pressure on prices," Eichiner said. "We saw this during the first quarter and we don't expect this trend to reverse in the short term."
BMW will still seek to grow its dealership network in China, looking to add 30 additional dealers this year, he said.
Eichiner said he expected a mid triple-digit-million euro windfall in 2015 from fair-value gains on derivative contracts used to hedge currency swings and commodity price fluctuations.
BMW also said its research and development spending ratio would climb back to 5.0 percent to 5.5 percent of revenues by year end, after falling to 4.4 percent in the quarter from 5.4 percent in the same period last year.
BMW reiterated it expected record sales and profit before tax this year thanks to a the launch of 15 new or upgraded Rolls-Royce, Mini and BMW models, including the BMW 2-series Gran Tourer seven-seat compact minivan and a revamped version of the 7-series.
Automotive segment revenues are forecast to grow "significantly" due to the increase in sales volume and exchange rate factors, BMW said. The company had previously expected a "solid" growth in revenues.
Download BMW Q1 report as a PDF, above right.
BMW cautioned that some regions continue to be difficult. "The situation on the Russian automobile market, for instance, is likely to remain difficult. The ongoing process of normalization of the Chinese automobile market is also likely to continue, resulting in less dynamic growth," it said in the statement.
First-quarter BMW brand sales were up 5.4 percent at 451,576 cars, BMW said, citing continued growth in Europe, North America and China and a 30 percent jump in deliveries of the X5. Sales of Mini brand cars rose 29 percent to a record 74,312, helped by a new-generation three-door hatchback and a new five-door variant. Rolls-Royce had its second-best first-quarter sales to date, with volume rising by 13 percent to 781, boosted by sales of the Ghost sedan.
BMW joins fellow German carmakers Volkswagen and Daimler in reporting higher first-quarter earnings estimates as more customers buy up-market vehicles, and Europe’s auto market revives. Industry executives are betting that growth in the region and the U.S., where sales have risen for 60 straight months, will make up for a slowing Chinese economy.
“Following a muted outlook at the start of the year, nearly all carmakers who have reported to date have increased their European end-market growth forecasts,” Arndt Ellinghorst, an analyst at Evercore ISI, said in a report before BMW released earnings. “Since the start of the year, we have been bullish on European market developments.”
Bloomberg and Reuters contributed to this report