BMW beats second-quarter forecasts as new anti pollution rules dent rivals

BMW beats second-quarter forecasts as new anti pollution rules dent rivals

BMW reported a smaller-than-expected 6 percent decline in second quarter operating profit on Thursday while brushing off concerns about new anti-pollution rules and global trade tensions which caused rival Daimler to warn on profits.

FILE PHOTO: The logo of German car manufacturer BMW is seen on the bonnet of a vehicle covered with
FILE PHOTO: The logo of German car manufacturer BMW is seen on the bonnet of a vehicle covered with water drops in Kiev March 27, 2012. REUTERS/Str (UKRAINE)/File Photo

FRANKFURT: BMW reported a smaller-than-expected 6 percent decline in second quarter operating profit on Thursday while brushing off concerns about new anti-pollution rules and global trade tensions which caused rival Daimler to warn on profits.

The German carmaker said higher spending to develop electric and autonomous cars and currency headwinds weighed on earnings before interest and taxes (EBIT), which fell to 2.74 billion euros (US$3.19 billion) but topped the 2.69 billion expected by analysts.

"At times when others are struggling, they are rock solid, and they don't seem to have an issue with WLTP," Evercore ISI analyst Arndt Ellinghorst said, referring to the new Worldwide Harmonized Light Duty Vehicles Test Procedure.

Evercore, which holds an 'in-line' rating on BMW, said the results were solid if unspectacular, while rivals Volkswagen and Mercedes had struck a more cautious tone.

BMW's automotive EBIT margin narrowed to 8.6 percent from 10.1 percent a year earlier while vehicle deliveries rose 0.7 percent.

Adjusted for comparability, BMW's automotive margin came in at 9.3 percent versus 9.2 percent for Volkswagen's Audi brand and 9.6 percent for Daimler's Mercedes-Benz, Evercore said.

BMW shares were down 1.2 percent at 1113 GMT.

The company expects capital expenditure to reach an all-time high in 2018, it said, as the company continues high levels of spending to develop electric and autonomous cars.

BMW will open a battery cell competence center with expertise in developing and producing battery cells in early 2019.

"We will also be purchasing raw materials for battery cells ourselves, especially cobalt, in the future," Chief Executive Harald Krueger told investors on a call to discuss earnings.

WLTP

BMW affirmed its 2018 targets to achieve slightly higher deliveries and revenue in the automotive segment and achieve a group profit before taxes at the previous year's level.

Mercedes-Benz and VW have both warned that problems certifying their vehicles to the WLTP standard would result in a more limited product offering, potentially damaging margins, BMW has largely completed converting its fleet.

"We see some advantages when compared with our competitors," Krueger said, explaining that most of BMW's models had received road worthiness certification and that waiting times were no longer than three months.

While BMW said it has most of its fleet available for sale, Volkswagen said only 60 percent of its VW brand fleet will have met emissions tests by end August.

BMW also said increased efficiency measures had helped offset a triple-digit million euro headwind from foreign exchange rates and raw materials.

TARIFFS

Because BMW earlier this year stopped exporting its X3 offroader from Spartanburg, South Carolina, to China it has been able to avoid a 40 percent import tariff, imposed since July, while rivals such as Mercedes still export large SUVs from the United States.

Demand for new models like the large X7 sports utility vehicle are so high that BMW is confident it can adjust prices to still make a profit on cars exported from the United States to China.

It has already raised prices on its X5 and X6 models and is building some X5 models in Thailand for export to China, the company said.

Tariffs were introduced as part of a broader trade dispute as the United States seeks to "rebalance" trade relationships with the European Union and China. These tariffs will have a low to midsize triple-digit million euros impact, Chief Financial Officer Nicolas Peter said.

This may force carmakers to retool their production networks to curb inter-continental exports and to serve regional trading blocs instead. BMW has already announced an expansion of its product capacity in China and Europe this year.

Krueger said he had met British Prime Minister Theresa May to underscore the need for Britain to maintain trading ties to the European Union.

"I explained this complex situation to her and what business preconditions we need. Britain should stay in the customs union," Krueger told journalists on a call.

Daimler, Fiat Chrysler and General Motors and supplier Valeo all blamed trade tensions for lowering their profit forecasts for the year.

(Reporting by Edward Taylor; editing by Maria Sheahan and Jason Neely)

Source: Reuters

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