BMW Quarterly Earnings Rise as SUV Sales Offset Spending
Bayerische Motoren Werke AG (BMW), the world’s biggest maker of luxury autos, said first-quarter profit rose 2.6 percent as growth in demand for its sport-utility vehicles helped make up for added investments in expansion.
Earnings before interest and taxes increased to 2.09 billion euros ($2.9 billion) from 2.04 billion euros a year earlier, the Munich-based company said today in a statement. Profit exceeded the 2.04 billion-euro average of 10 analyst estimates compiled by Bloomberg. Revenue gained 3.9 percent to 18.2 billion euros.
The BMW brand retained the top post in global luxury sales over Volkswagen AG’s Audi and Daimler AG’s Mercedes-Benz in the quarter with a 12 percent jump in deliveries. The German rivals, which rank No. 2 and 3 respectively, have each vowed take the lead by the end of the decade. BMW is responding by adding models, and the spending led quarterly Ebit from carmaking to narrow to 9.5 percent of sales from 9.9 percent a year earlier.
“There are question marks over the continued downward trajectory of the auto Ebit margin despite higher sales and an improved mix” with more deliveries of higher-priced cars, said Mike Dean, a London-based analyst at Credit Suisse.
BMW fell as much as 1 percent to 87.90 euros and was trading down 0.5 percent at 1:04 p.m. in Frankfurt, reversing a gain from earlier today. The stock has risen 3.5 percent this year, valuing the manufacturer at 56.9 billion euros.
Investments in new products and equipment during the quarter rose 1.6 percent to 1.24 billion euros, with research and development spending increasing 4.2 percent to 993 million euros. The cost of coming out with new low-emission and lightweight technology “is designed to strengthen our future market position,” Chief Financial Officer Friedrich Eichiner told reporters during a telephone conference.
Eichiner reiterated that BMW plans to rein in expenditures this year and move research and development spending as a proportion of sales “closer in line with our target range” of 5 percent and 5.5 percent from the 6.3 percent posted in 2013. The first-quarter figure amounted to 5.4 percent, he said.
The company stuck with a target for a significant gain in 2014 pretax profit as 16 new and refreshed models, such as the 4-Series Gran Coupe and the X4 mid-size SUV, bolster sales. First-quarter earnings on that basis rose 8.1 percent to 2.17 billion euros. The full-year figure will rise by at least a high single-digit percentage above 2013’s 7.91 billion euros, Eichiner said in March.
Audi, which has never held the top global luxury-car sales post for an entire year, will introduce 17 new or revamped vehicles in 2014, including a remake of the iconic TT sports car. Stuttgart-based Mercedes is rolling out 30 autos by the end of the decade, including a dozen all-new cars.
BMW is adding the X4 and the 2-Series Active Tourer in 2014 and will start deliveries of the i8 plug-in hybrid sports car next month. The company’s vehicle-sales gains in the quarter were propelled by the SUV line, with demand jumping 15 percent for the X1, 11 percent for the X3 and 14 percent for the X5.
The automaker is spending $1 billion to expand production at a South Carolina factory, where it builds SUVs, by 50 percent and is considering a second plant in North America.
“BMW remains in great shape, but we’re not convinced the company’s definition of ‘significantly higher’ profits in 2014 will be enough to excite the market from here,” Max Warburton, a Singapore-based analyst at Sanford C. Bernstein Ltd., wrote today in a report.
The 9.5 percent margin from automotive operations at BMW compares with 7 percent at Mercedes and 10.1 percent at Ingolstadt-based Audi during the quarter.
The three German manufacturers are facing a challenge from smaller producers of upscale vehicles, including Tata Motors Ltd. (TTMT)’s Jaguar Land Rover and Fiat SpA (F)’s Maserati, which are adding models to lure customers and grab a bigger chunk of this lucrative market segment. Profit margins for premium cars tend to be larger than for mass-market vehicles.
BMW, which also owns the Mini and Rolls-Royce brands, is forecasting that group sales will exceed 2 million autos for the first time in 2014, achieving the target two years earlier than planned. It expects to retain the top spot in the global premium-car segment, which would make BMW the best-selling luxury marque globally for the 10th straight year.
To contact the reporter on this story: Christoph Rauwald in Frankfurt at email@example.com