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BMW Autos Lost Money In 3rd Quarter; Investors Unworried

Return To Profits Expected, Production Methods To Pay Off
But S&P Begs To Differ, Slashes Ratings, Warns About Future

BMW lost money making cars in the third quarter, but this didn’t phase investors too much.

UniCredit analyst Sven Kreitmair said BMW was riding out the economic storm well, and would return to profits in 2010.

In the third quarter of 2009, BMW’s auto subsidiary reported an operating loss of €76 million, compared with an operating profit of €141 million in the same period of 2008. Overall, BMW’s net profit dived to €87 million from €298 million.

“We believe that BMW has responded adequately to the current market scenario with its strategy to improve cash flow and profitability as well as to adjust its premium product portfolio strategy to the new trends with environmentally-friendly drive systems and production processes, and smaller and highly efficient cars,” Kreitmair said.

“BMW’s group EBIT (earnings before interest and tax) for 2010 is expected by consensus to recover to 3.5 per cent, compared with Daimler’s 3.3 per cent and VW’s 2.5 per cent,” he said.

Nomura International analyst Dorothee Cresswell described BMW’s third results as disappointing, but said the company remains well positioned for the coming 12 months because –

  • In comparison with its volume peers BMW has seen virtually no benefit from scrapping incentives, so payback will be minimal when the schemes end.
  • BMW’s new product line-up looks strong, with the average age halving between 2009 and 2012, with the X-1 compact SUV currently being launched, and the new 5-Series expected next spring.
  • BMW’s new products will mean big cost savings because of improved manufacturing methods.

“While we have doubts about BMW’s longer term targets of 1.6 to 1.65 million annual sales in 2012 and an 8-10 per cent margin in autos – BMW’s historical average range is 6-8 per cent and a downward shift in engine and model mix seems unavoidable –  we still regard its near term prospects as relatively favourable,” Cresswell said.

Investors with negative thoughts about BMW are thin on the ground, but there some voices expressing caution.

U.S. ratings agency Standard & Poors looked at BMW’s numbers and prospects, didn’t like what it saw, and slashed the company’s credit rating, citing weakness in luxury auto demand.

Weak profits again
“The downgrade reflects our expectations that BMW’s profitability will remain weak in 2010 for the third year in a row,” said S&P credit analyst Barbara Castellano.

S&P worried also about BMW’s exposure to leasing.

But investors refused to worry.

“BMW is the auto assembler about whose profit progression we fell most confident on a multi-year view, through a combination of its self-help and the stabilization of markets,” said Citigroup Global Markets analyst John Lawson.


Neil Winton – November 20, 2009

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