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BMW Forecasts Unchanged 2013 Pretax Profit on Europe Drop

March 19, 2013

BMW Forecasts Unchanged 2013 Pretax Profit on Europe Market Drop

BMW’s earnings before interest and taxes rose 3.5 percent to 8.3 billion euros in 2012 as revenue climbed 12 percent to 76.8 billion euros, the automaker said last week. Photographer: Chris Ratcliffe/Bloomberg

Bayerische Motoren Werke AG (BMW), the world’s biggest maker of luxury cars, forecast unchanged 2013 pretax profit as European auto sales drop and BMW increases spending to bring out 25 new models in the next two years.

“The high returns of the past years can’t be perceived as the normal state,” Chief Financial Officer Friedrich Eichiner said today at the Munich-based automaker’s annual press conference. “We have to deal with high up-front investments in new technologies to reach our ambitious targets.”

BMW is locked in a tight race with Volkswagen AG (VOW)’s Audi for the global top spot in deliveries, with the BMW brand’s lead contracting to just 407 vehicles in the first two months. BMW’s European deliveries dropped 2.8 percent in February as the region’s car-sales contraction accelerated to 10 percent.

Pretax profit climbed 6 percent to 7.82 billion euros ($10.1 billion) in 2012 as revenue rose 12 percent to 76.8 billion euros, the automaker said last week. BMW’s outlook released today is better than the average analyst forecast of a 1.3 percent profit drop to 7.72 billion euros.

The shares gained as much as 1.42 euros, or 2.4 percent, to 71.85 euros on the profit outlook, and were up 1.1 percent as of 12:27 p.m. in Frankfurt. The stock has dropped 2.6 percent this year, valuing the company at 45.5 billion euros.

New Models

BMW is bringing out 11 models this year, including the 3- Series GT and 4-Series coupe, and preparing to roll out its first electric vehicle, the i3 city car, in pursuit of its third consecutive year of record sales. Of the 25 new vehicles coming to market through 2014, 10 of them, such as the X4 sport-utility vehicle, have no predecessor.

The manufacturer will increase research and development investments in 2013, Eichiner said, with the percentage of spending to sales exceeding the targeted range of 5 percent to 5.5 percent. The figure was 5.1 percent in 2012.

BMW joins VW and Daimler AG (DAI) in predicting unchanged 2013 profit as the region’s auto market shrinks for a sixth straight year after dropping to a 17-year low in 2012. All three posted European sales declines in February, according to data released today from the ACEA industry group.

“BMW can’t escape the very weak European market and needs to step up investments as the current models are aging,” said Juergen Pieper, a Frankfurt-based analyst with Bankhaus Metzler who recommends selling the shares.

Slower Growth

BMW’s sales globally will probably rise less than 10 percent this year, the automaker said today.

“We’re not going to chase volume at all costs, this is not our business,” sales chief Ian Robertson said in an interview, adding that he was confident that BMW will “retain the global premium position on the group level.”

Profitability at Germany’s luxury-auto makers is taking a hit as the BMW, Audi and Daimler’s Mercedes-Benz spend money to stay ahead in design and technology, and Europe’s declining auto market leads to higher discounts.

Earnings before interest and taxes at BMW’s car division last year declined to 10.9 percent of sales from 11.8 percent in 2011 and lagged behind Audi’s 11 percent margin. Mercedes sank deeper into third place with an operating margin of 7.1 percent. BMW’s 2013 return on sales will be in its long-term target range of 8 percent to 10 percent.

Sales Lead

“An auto margin of 8 percent to 10 percent has always been ambitious,” Eichiner said. “To still make an 8 percent to 10 percent margin is not a bad forecast.”

BMW solidified its sales lead in 2012 with a 12 percent increase to 1.54 million BMW-brand vehicles on demand for the new 3-Series sedan, 1-Series compact and X1 and X3 SUVs. Audi’s deliveries expanded 12 percent to 1.46 million cars, while Mercedes’s sales rose 4.7 percent to 1.32 million cars.

To secure its grip on the premium segment’s top spot, BMW last week appointed Peter Schwarzenbauer, the former Audi sales chief, to run the Mini, Rolls-Royce and BMW motorcycle brands as well as after-sales operations. Schwarzenbauer will replace Harald Krueger, who will become production chief.

The carmaker’s factories are currently running beyond full capacity to meet customer demand outside Europe, BMW said today. Mercedes is also expanding production for its compact car lineup, adding the CLA four-door coupe to complement the new A- and B-Class vehicles.

“The global financial environment is both uncertain and volatile,” Chief Executive Officer Norbert Reithofer said today. “Our business performance is exposed to many risks.”

To contact the reporter on this story: Dorothee Tschampa in Frankfurt at dtschampa@bloomberg.net

To contact the editor responsible for this story: Chad Thomas at cthomas16@bloomberg.net


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