Bankers See Pressure Ahead As Markets Weaken
“We believe that overall trends in the industry point to further underlying weakening in profitability despite growing volumes”
BMW was unable to maintain its record breaking earnings performance but reaffirmed high profit expectations for the whole year.
Investment banks though see trouble ahead.
In the second quarter, BMW’s earnings before interest and tax (EBIT) fell 19 per cent from last year’s record to €2.27 billion, while sales increased 7.3 per cent to €19.2 billion.
Earnings were hurt by higher personnel costs, increased spending on research and development, and intense market competition, BMW said.
BMW repeated its forecast that for the whole of 2012, EBIT profits will be at the high end of the eight to 10 per cent target range.
The second quarter results showed BMW’s auto profit margin of 11.6 per cent matched Audi’s, which was well ahead of Mercedes 8.6 per cent.
From here on in though BMW will be under pressure as market conditions generally come under pressure..
“We maintain our view that profitability in the second half is likely to fall further, in part due to seasonal factors as typically third quarter volumes are lower and fourth quarter structural costs suffer a year-end effect. We believe that overall trends in the industry point to further underlying weakening in profitability despite growing volumes,” said Deutsche Bank analyst Jochen Gehrke.
In a statement August 7 though, BMW said it expects to make solid sales gains in the second half despite flat European demand, after announcing July sales rose five per cent to 135,537 BMWs, Minis and Rolls Royces. BMW is launching a face-lifted 7-Series and new X1 SUV this month.
Gehrke pointed out that even if BMW profits fall, they are retreating from a very high number.
“We continue to believe that the situation is well controlled, but margins in 2011 were a result of perfect market conditions in almost all areas, hence profitability expectations by investors should be set lower for the mid-term,” Gehrke said.
Neil Winton – August 15, 2012