BMW profits hammered despite rise in deliveries

May 8, 2019

BMW's first-quarter operating profit fell 78 per cent to €589 million (Dh2.41bn), despite higher deliveries of luxury vehicles, as the car maker felt the effects of higher investment spending and a €1.4bn legal provision.

The European Commission last month told German car makers they face hefty fines for alleged collusion in the area of emissions filtering technology. BMW denies participating in anti-trust activities and is contesting the allegations, according to Reuters.

Adding to the downbeat tone, the company reiterated that it expects group profit before tax to be well below the previous year's level. It also sees weaker car sales in the first half of 2019 as factories are retooled to produce a new 1-series and 3-series.

BMW's first-quarter earnings before interest and taxes were below the €666m forecast in an analyst poll. A contribution of €648m from financial services only partially offset a €310m loss before interest and taxes at the automotive division.

Analysts said BMW's results were underwhelming, adding that sales of electric and hybrid cars were not stellar. Shares fell 1.6 per cent by 10:45 GMT.

'As most companies have done, BMW points towards a stronger second half this year. We remain sceptical regarding this optimism as we don't see much stronger end-markets,' analysts at Evercore ISI said, citing trade tensions and emissions rules as risks.

The car maker struck to its full year outlook of an increase in vehicle deliveries, and its goal of aiming for an ebit margin of between 8 per cent and 10 per cent.

Due to the anti-trust proceedings, it expects a margin in the automotive segment of between 4.5 per cent and 6.5 per cent, the car maker said.

Investments into new technologies and the rising cost of complying with stricter carbon emissions legislation are also likely to have a dampening effect on earnings.

BMW said spending on property plants and equipment jumped 36 per cent to €999m in the first quarter as BMW prepares its factories to launch new vehicles like the 3-series and to build next generation electric and hybrid cars.

Rising trade tensions between China and the United States may dampen earnings further and could depress profits by a low triple digit million euros amount, but will not threaten the company's guidance, BMW's chief financial officer Nicolas Peter said.

To counter rising costs, BMW said it will cut the available engine and gearbox combinations by 50 per cent and seek efficiency savings of more than €12bn by the end of 2022.

Excluding the impact of the legal provision, BMW's automotive division delivered an operating margin of 5.6 per cent in the first quarter. It would have been around 1 percentage point higher if profits from BMW's China operations were counted.

By contrast the return on sales at Mercedes-Benz passenger cars fell to 6.1 per cent, down from 9 per cent a year earlier and rival Volkswagen said the return on sales for its passenger cars business will be at the lower end of its 6.5 per cent to 7.5 per cent margin target this year.

Orders for the X7 were exceeding all expectations, chief executive Harald Krueger said.

BMW also booked a €328m valuation gain from BMW and Daimler's mobility services business, the car maker said. The company is co-operating with Daimler in autonomous driving, and the two companies merged their mobility services earlier this year. Though there has been speculation about further cooperation plans, Mr Krueger poured cold water on hopes of a cross-share holding on Tuesday, according to Bloomberg.

“We’re focusing on the current projects, mobility services and autonomous driving, but any sort of cross-share holding I can definitively rule out,” Mr Krueger said.

BMW said it will contest the European Commission's allegations that its participation in industry working groups amounted to anti-competitive behaviour.