BMW Profits Drop As Expected And Share Price Advances.
“In terms of the mid-term investment case, we see little in the statement to undermine our view that the incoming management team will need to significantly re-base expectations in the coming months”
BMW profits slumped in the second quarter, but the fall had been well signposted and the company’s shares advanced 1% by midday in Europe to 67.50 euros, while the broad-based Auto STOXX 600 rose only about 0.3%.
BMW’s vanishing profits compared well with its big rival, Daimler owned Mercedes, which lost money in the second quarter.
BMW’s pre-tax profit fell to 2.1 billion euros ($2.3 billion) from 2.9 billion ($3.2 billion) in the same period of 2018, while sales rose 3% to 25.7 billion euros ($28.4 billion). The operating margin fell to 8% from 11.5%.
BMW said it was suffering because of slowing sales in the U.S., China and Europe, while it had to spend more to handle the advent of new technologies like electric cars and computer driven ones. It expects to hit its targets for all of 2019.
BMW’s profit margin target for the auto division in 2019 is between 4.5 and 6.5%.
Meanwhile VW reported late last month its 2nd quarter net profit rose to 3.9 billion euros ($4.3 billion) from 3.2 billion euros ($3.6 billion) in the same period of 2018. Daimler reported a 2nd quarter loss before interest and taxes (EBIT) of 1.6 billion euros ($1.8 billion) after a 2.6 billion euro ($2.9 billion) profit in the same period last year.
Investors had expected the profit fall at BMW, but Citi Research analyst Angus Tweedie said its underlying results were slightly weaker than expected.
“In terms of the mid-term investment case, we see little in the statement to undermine our view that the incoming management team will need to significantly re-base expectations in the coming months,” Tweedie said.
Oliver Zipse takes over as BMW CEO on August 16, replacing Harald Krueger.
An early problem for Zipse will be to review BMW’s electric car policy. BMW has held back from designing new electric cars from the ground up, but has bought forward targets to launch 25 electric or hybrid vehicles from 2025 to 2023, and said that more than half the new models would be battery-only.
BMW has used existing engineering to develop electric cars, unlike VW, which is about to launch a range of electric vehicles designed from scratch to be completely electric.
Investment researcher Evercore ISI liked what it saw in the BMW numbers, saying they were in line with its predictions.
“There are no major hiccups and as the product momentum is improving, so will profitability and cash flow. In an extremely volatile auto world, this is very good news,” Evercore ISI analyst Arndt Ellinghorst said.