BMW Profits Slip, But Should Hit Target Range For The Year.
3 Series Sales In The U.S. Slow.
BMW profits are coming under pressure because of foreign exchange swings, China weakness and now problems in the U.S., but most investors shrugged off short-time problems and decided that the future looks relatively healthy.
In the first quarter BMW earnings before interest and taxes slid 2.5 per cent to €2.5 billion compared with the same period last year, mainly because of fluctuations in the British and Chinese currencies.
BMW said it was also raising spending on new technologies like electric and robot cars. CEO Harald Krueger described conditions in the quarter as “volatile”.
Citi Research said despite the fall, it was impressed with BMW’s performance, but didn’t expect it to improve much during the year. The success of the new 7 series won’t be enough to offset the headwinds of an ageing 3 and 5 series.
“The net result as we see it is a flat 2016 for earnings,” said Citi Research analyst Michael Tyndall.
The U.S. operation was suffering from oversupply, built up as it tried, and succeeded, in elbowing aside Mercedes and Lexus to win the crown of biggest selling luxury brand. This overhang consists mainly of 3 series saloons, according to Automotive News.
Analysts pointed out that inventories rose €1.9 billion in the first quarter.
Despite these problems, BMW said its profit for 2016 would be slightly higher than last year’s, with the EBIT margin between the long-term target of eight to 10 per cent. It was 9.4 per cent in the first quarter.
Morgan Stanley described BMW as more resilient than other manufacturers and retained its “overweight” stance.
Evercore ISI said it retained its preference for BMW shares over other big manufacturers, with limited risk for negative profit surprises, and improving product momentum.
Citi Research said it likes BMW as a company but doesn’t see much future in owning its shares, which it recommends investors should sell.