BMW Sticks to Growth Plans After Quarterly Profit Rises

BMW Profit Beats Estimates as China Growth Offsets Europe Slump
A Bayerische Motoren Werke AG (BMW) vehicle moves down an assembly line at the BMW Brilliance Automotive Ltd. Tiexi plant in Tiexi, near Shenyang, Liaoning Province, China. Photographer: Nelson Ching/Bloomberg

Bayerische Motoren Werke AG stood by plans to increase 2012 profit after third-quarter earnings beat analyst expectations, helped by gains from auto loans.

The world’s biggest maker of luxury cars is pushing to boost deliveries next year, led by growth in the U.S. and China. Backed by new models like an extended version of the 3-Series sedan, the Munich-based company plans to increase sales in China by more than 10 percent, outpacing the market.

“We expect our attractive product lineup to generate positive momentum” in 2013, even as Europe stagnates and global growth slows further, Chief Financial Officer Friedrich Eichiner said today on a conference call.

Buoyed by growth in Asia and the U.S., BMW has largely been unscathed by the sovereign-debt crisis, which is set to cause the biggest drop in European auto demand in nearly two decades this year. Daimler AG’s Mercedes-Benz has lowered profit targets and initiated a cost-cutting plan because of the slowdown in Europe and aging models. BMW said today that it doesn’t need a special savings program.

Third-quarter earnings before interest and taxes rose 14 percent to 2 billion euros ($2.6 billion), lifted by a 16 percent gain in profit at the financial services division. The figure beat the 1.74 billion-euro average of 11 estimates compiled by Bloomberg. Sales climbed 14 percent to 18.8 billion euros. Net income jumped 16 percent to 1.29 billion euros.

Pricing Pressure

“The only little hair in the soup is the auto segment, in which pricing pressure in Europe weighed on the margin,” said Juergen Pieper, a Frankfurt-based analyst at Bankhaus Metzler. “But they also earn money with the financial services. The focus shifted a little bit.”

BMW was down 0.2 percent at 64.34 euros as of 3:40 p.m. in Frankfurt trading, after earlier falling as much as 2.6 percent. The stock has climbed 24 percent this year, valuing the company at 41.1 billion euros and making it worth more than Daimler, which also makes heavy-duty trucks and buses.

Ebit at BMW’s carmaking division fell 9.3 percent to 1.65 billion euros, burdened by higher development costs and “intense competition,” the company said. That led to a decrease in the margin to 9.6 percent from 11.9 percent a year earlier. Incentives burdened its return on sales by as much as 1.2 percentage points, CFO Eichiner said.

Volkswagen AG’s Audi, the world’s second-largest luxury-car brand, reported a margin of 10.5 percent last quarter, outpacing the 6.4 percent at Mercedes.

Rising Risks

“Like the rest of the sector, we are now beginning to feel some headwind,” Chief Executive Officer Norbert Reithofer said. “Competition is intensifying and risks are increasing.”

Still, the German manufacturer, which also makes BMW and Husqvarna motorcycles, stuck to its full-year target of beating 2011’s pretax profit of 7.38 billion euros.

BMW also forecasts higher automotive profit and margins at the division to be at the “upper end” of a range of 8 percent to 10 percent of sales for the full year as long as the global economy doesn’t worsen further. It said today that declining markets may have a “perceptible impact” on its auto business.

The company also plans to deliver more than 1.7 million cars this year, posting new sales records at its BMW, Mini and Rolls-Royce brands. BMW said today that it expects further growth in sales in the fourth quarter.

BMW has defended its sales lead over Audi this year, boosted by 33 percent growth in China and a 7.1 percent advance in the U.S. Global deliveries rose in October by more than 12 percent, the company said today.

Sales Lead

Lifted by demand for the 1-Series compact and 3-Series vehicles, the manufacturer delivered 1.11 million BMW cars and sport-utility vehicles in the first nine months of 2012, compared with Audi’s 1.1 million. Mercedes delivered 965,000 vehicles. Audi and Mercedes have both vowed to take the top spot from BMW by the end of the decade.

To fend off its rivals, BMW will invest 200 million euros in a new assembly facility in Brazil to produce 30,000 vehicles annually. The move counters Audi’s plans for a 150,000-unit plant in San Jose Chiapa, Mexico, as both carmakers target growth in Latin America. BMW will also start producing Mini vehicles at a former Mitsubishi Motors Corp. plant in the Netherlands from 2014.

To prepare for a further slowdown in Europe, BMW has negotiated measures with labor representatives at its German plants that allow it to ratchet back production. The agreement lets the carmaker cancel shifts and curtail breaks if needed.

BMW has also shifted “tens of thousands” of cars that were originally targeted for Europe to the U.S. and Asia this year as sales weaken in the crisis-hit region, Ian Robertson, the brand’s sales chief, said last month. CFO Eichiner said today that the company will act “vigorously” if the market decline accelerates.

“BMW is well prepared for more challenging times,” said Tim Schuldt, a Frankfurt-based analyst with Equinet. “They have a relatively young model lineup, but it’s going to be difficult for them to grow again in 2013.”


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