BMW Targets Higher Pretax Profit as 3-Series Fuels Demand

BMW Targets Higher Pretax Profit as 3-Series Fuels Demand
An employee checks a completed Bayerische Motoren Werke AG 3-series automobile, as it travels along the production line at the company's assembly plant in Regensburg. Photographer: Guenter Schiffmann/Bloomberg

Bayerische Motoren Werke AG, the world’s largest maker of luxury vehicles, plans to surpass last year’s record profit in 2012 as a new generation of the 3-Series sedan boosts demand.

Pretax profit this year will probably beat 2011’s 7.38 billion euros ($9.72 billion), the Munich-based company said today. The outlook exceeds the 7.06 billion-euro average estimate of 20 analysts surveyed by Bloomberg.

“We are targeting new highs in sales volume and pretax earnings for 2012,” Chief Executive Officer Norbert Reithofer said at the company’s annual press conference. “We are off to a promising start” with car sales in the first two months of the year at an all-time high.

BMW will add a second plant in China this year and is in talks with the Brazilian government to build a factory in the country as the luxury-car maker seeks to fend off efforts by Volkswagen AG’s Audi and Daimler AG’s Mercedes-Benz to nab the segment’s lead spot. VW and Daimler forecast flat 2012 earnings, burdened by costs for cleaner technology and new models.

The world’s top three upscale carmakers are all projecting sales records this year on growth in China and recovering spending in the U.S. After delivering 1.67 million cars last year, BMW expects to sell at least 2 million vehicles by 2016, four years earlier than planned, Reithofer said today.

Steady Target

“The outlook doesn’t look too ambitious,” said Juergen Pieper, a Frankfurt-based Bankhaus Metzler analyst with a “buy” rating on the shares. “BMW didn’t trust itself to raise its margin target range, but in this environment it’s understandable and fits to BMW’s conservative approach.”

BMW traded down 7 cents, or 0.1 percent, at 70.98 euros as of 1:33 p.m. in Frankfurt after advancing as much as or 0.8 percent. BMW has risen 27 percent over the past 12 months, making it the third-best performer in the 14-member Euro Stoxx autos and parts index and valuing the company at 45.1 billion euros.

Profitability at the automotive unit may decline this year as the debt crisis unsettles consumers in Europe and the introduction of new versions of the 3-Series and 1-Series compact boosts sales of the lower-margin models.

‘Uneasy Markets’

“Markets and consumers alike remain uneasy about the significant public debt and the euro crisis,” Reithofer said, projecting auto earnings before interest and taxes to be “at the upper end” of its 8 percent to 10 percent target range. That’s down from 11.8 percent in 2011.

The maker of BMW, Mini and Rolls-Royce vehicles spent 500 million euros in the second half of 2011 to introduce new models. The expenses caused BMW’s auto margins to drop below Audi’s, which reported a 12.1 percent return on sales. Mercedes, which is spending on a new line of small cars, posted a 9 percent Ebit margin in 2011.

Investments to introduce the “i” electric-car sub-brand and to expand into new markets will likely burden profit more in 2012 than last year, Chief Financial Officer Friedrich Eichiner said today.

“Key future projects are likely to result in a negative impact on earnings stronger than last year,” he said, adding that spending will still be less than 7 percent of sales.

Higher Dividend

BMW expects deliveries in 2012 to rise even as the debt crisis in Europe makes sales in its home region an “uphill battle,” Reithofer said last week at the Geneva motor show. The company projects sales this year to rise by at least 10 percent in China and by a “high single-digit” rate in North America, offsetting a market decline of as much as 5 percent in Europe.

The luxury-car maker proposed a dividend of 2.30 euros per common share for 2011, an increase from the previous year’s 1.30 euros, after net income surged 51 percent to 4.91 billion euros.

Reithofer’s total compensation for last year rose to 6.16 million euros from 4.3 million euros a year earlier, the company said in its annual report.

Higher demand for luxury vehicles was also evident in the earnings of Porsche SE’s carmaking unit. The maker of the 911 sports car, which is 49.9 percent-owned by Volkswagen, said today that 2011 earnings before interest and taxes climbed 22 percent to a record 2.05 billion euros. Sales rose 18 percent to 10.9 billion euros, lifted by demand for the Cayenne SUV.

New Models

BMW introduced a new four-door version of the 6-Series coupe at the Geneva motor show last week, while the Mini brand announced plans to produce the Clubvan cargo vehicle starting in the second half, adding to the new two-seat roadster this year. The company plans to roll out 12 new and upgraded BMW and Mini models by this summer, Reithofer said today.

In an effort to lower research costs for developing cleaner technologies such as fuel cells, BMW is in talks with General Motors Co. about a potential cooperation, adding to its existing partnerships with PSA Peugeot Citroen and Toyota Motor Corp., Reithofer said March 6.

To shore up its management ranks for its expansion, BMW appointed Milagros Caina-Andree as head of personnel. The Spanish-born executive will join the automaker in July from Deutsche Bahn AG’s Schenker logistics unit, becoming BMW’s first female management board member. The appointment expands the board to eight.

Current personnel chief Harald Krueger will take on a new role overseeing sales and product lines of the Mini and Rolls-Royce brands as well as BMW’s motorcycle unit. He will also expand BMW’s after-sales business.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE