BMW Tempers Growth Forecast as Spending Remains High


BMW AG forecast slower earnings growth in 2015 because of aging models and high spending on new technologies to fend off rivals, sending the stock down the most in almost three years.

The world’s largest luxury-car manufacturer expects pretax profit this year to show “solid” growth, which the Munich-based company defined as a range of 5 percent to 9.9 percent. That compares with a 10.3 percent gain in 2014 pretax profit.

With Audi and Mercedes-Benz expanding aggressively, BMW is scrambling to stay out front as it prepares for a change of leadership in May. This year, the carmaker plans to introduce 15 models, including the new seven-seat Gran Tourer wagon and a revamped version of the top-of-the-line 7-Series sedan. BMW’s profitability from carmaking fell at the end of last year after the company spent more than planned to develop new cars.

“BMW has clearly shifted down a gear with its outlook,” said Juergen Pieper, a Frankfurt-based analyst for Bankhaus Metzler. “BMW is held back by a comparatively older product lineup.”

The shares fell as much as 6 percent, the biggest intra-day drop since May 2012, and were down 3.9 percent to 116.25 euros at 12:36 p.m. in Frankfurt. BMW rose 35 percent this year prior to today, compared to a 22 percent increase in the benchmark DAX Index.

Luxury Race

Volkswagen AG’s Audi and Daimler AG’s Mercedes both aim to overtake BMW in sales by the end of the decade and have been closing the gap, thanks to new models like Audi A3 sedan and Mercedes GLA compact crossover. Audi outsold BMW’s main brand in the first two months of 2015, while Mercedes posted the fastest growth rate of the three German luxury-car producers in the period.

“We intend to remain the world’s leading premium-car company,” BMW Chief Executive Officer Norbert Reithofer said at the company’s annual press conference in Munich. “However, many uncertainties remain. Important markets like China are losing momentum.”

Reithofer, 58, will be succeeded as CEO by BMW’s production head Harald Krueger, 49, on May 13, when the company holds its annual shareholders’ meeting.

IHS Automotive estimates that the BMW nameplate will maintain its full-year lead with sales of 1.82 million cars, compared with 1.7 million deliveries by Ingolstadt-based Audi and 1.6 million by Stuttgart-based Mercedes.

Development Spending

BMW invested almost 4.6 billion euros in new models and technologies such as self-driving systems last year. That meant capital expenditures amounted to 5.7 percent of revenue, slightly higher than its goal of spending 5 percent to 5.5 percent. For this year, the company will again be “slightly above” that target range, Chief Financial Officer Friedrich Eichiner said.

BMW stuck to its goal of profit margins for the automotive division in a range of 8 percent to 10 percent of sales. Last year’s automotive operating profit was 9.6 percent of revenue. The company, which also makes Mini and Rolls-Royce cars, expects to also show “solid” growth in the number of vehicles delivered this year.

“We do expect volume growth from new products but think 2016 is the more exciting year” for BMW, Kristina Church, a London-based analyst at Barclays Plc, said before the press briefing.

(Corrects percentage gain of 2014 pretax profit in story originally published March 18.)
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