BMW Improves Quarterly Financial Data, After Daimler Led The Way.
“Economic disruption caused by the coronavirus pandemic continues to significantly impair forecasting and leads therefore to considerable uncertainty in providing an accurate outlook”
BMW investors reacted calmly to news free cash flow, an important early indicator of profitability, zoomed ahead in the 3rd quarter at a much faster rate than expected by analysts.
Mercedes parent Daimler announced a similar transformation in its fortunes earlier this month, which prompted investors to assume the automotive industry might be recovering from the coronavirus faster than expected. Both companies released their news ahead of scheduled 3rd quarter financial reports to make sure crucial and unexpected news didn’t leak out early and penalise some shareholders.
BMW said its free cash flow jumped to €3.07 billion ($3.6 billion) in the 3rd quarter from €714 million ($842 million) in the same period last year.
Investment researcher Bernstein analyst Arndt Ellinghorst said the BMW improvement results from operational earnings performance and strict control of capital spending and was not related to working capital inflows.
Daimler’s early announcement showed much better than expected 3rd quarter results, with operating profits at €3.1 billion. Daimler will announce its official numbers October 23, and BMW on November 4.
BMW said in a statement that despite the cash flow news its future remains uncertain because of the coronavirus.
“The previous earnings forecasts for the individual segments and the (BMW) Group remain unchanged. Economic disruption caused by the coronavirus pandemic continues to significantly impair forecasting and leads therefore to considerable uncertainty in providing an accurate outlook,” BMW said.
When BMW reported its half year financials in August it said it lost a record amount of money in the coronavirus-stricken second quarter, but still expects to make a profit for the whole year, albeit a tiny one. The loss was its first in over 10 years.
BMW joined Volkswagen, Daimler, France’s Renault and Volvo of Sweden in posting losses because of the pandemic. Groupe PSA remained in the black.
BMW lost a pre-tax €498 million ($600 million) in the 2nd quarter and made an operating loss of 666 million euros ($800 million). BMW’s EBIT (earnings before interest and tax) margin for cars dived to minus 10.4% from plus 6.5% in the same quarter last year, but it stuck with a forecast it made in May that the margin would range from zero to 3% for the year as a whole. BMW remained in the black for the whole of the 1st half.
Daimler reported a 2nd quarter operating loss of €1.68 billion euros ($1.95 billion).
BMW shares were barely changed Tuesday in European trading at just under €64. The shares have traced a steady improvement since the March pandemic-induced low of €38. Daimler shares jumped 5.7% Tuesday and have also gained steadily from late March’s low of €22.
The STOXX 600 index of European auto manufacturers and suppliers has also been on the rise since March, but tracked at a more modest pace.
According to Investopedia (https://www.investopedia.com/terms/f/freecashflow.asp)
- Free cash flow (FCF) represents the cash available for the company to repay creditors or pay dividends and interest to investors.
- FCF reconciles net income by adjusting for non-cash expenses, changes in working capital, and capital expenditures (CAPEX).
- However, as a supplemental tool for analysis, FCF can reveal problems in the fundamentals before they arise on the income statement.