BMW Offers Sober Global Outlook -- WSJ
May 04 2016 - 3:04AM
Dow Jones News
Auto maker cites difficulty in reversing weakening U.S. sales;
China, Europe uncertain
By William Boston
MUNICH -- BMW AG warned of a tough business outlook for the rest
of the year, citing difficulty in reversing declining sales in the
U.S. on top of uncertainty in China and Europe.
The sober outlook sent the luxury-auto maker's stock price down
more than 4% despite BMW's reporting a rise in first-quarter
profit.
The year's challenges include moderating growth in China,
political turmoil in Europe and weakening demand in the U.S.,
together with heightened competition globally in the premium-car
segment, BMW Chief Executive Harald Krüger said on Tuesday.
"We expect that the U.S. trend will continue until the summer,"
Mr. Krüger said. BMW first-quarter sales in the U.S. fell 11% from
the year-earlier period.
Amid a strong shift in the U.S. toward sport-utility vehicles,
the German auto maker is now boosting production of SUVs in the
U.S. and cutting back on sedans. BMW expects its U.S. business to
pick up in the second half of the year.
BMW reported an 8.2% rise in net profit in the first three
months of the year despite a slight drop in revenue and a decline
in operating profit of its core automotive division.
The auto maker stuck to its forecast for improved sales and
earnings this year.
Mr. Krüger had previously warned BMW's profit growth would slow
this year as the company accelerates development of technologies to
compete with budding rivals including Tesla Motors Inc., Alphabet
Inc.'s Google, Apple Inc. and mobility-service companies like Uber
Technologies Inc.
Some industry experts predict that car companies such as BMW
will earn a greater share of their future profits from car-sharing,
ride-hailing and other mobility services than from the sale of
their automobiles. BMW recently shifted its long-term strategy to
take advantage of the trend.
"The decisive factor for us isn't short-term profit but
sustainable, profitable growth," Mr. Krüger said. "From this
position of strength, we intend to play a pioneering role in
transforming and shaping the world of individual mobility going
forward."
The Munich-based auto maker said first-quarter profit rose to
EUR1.64 billion ($1.90 billion) from EUR1.52 billion a year
earlier. Revenue slipped 0.3% to EUR20.85 billion, as currency
swings offset a 6% rise in vehicle sales.
Earnings before interest and taxes, a key measure of BMW's
operational performance, fell 2.5% to EUR2.5 billion. The retreat
reflected a 1.7% decline in that measure at the group's automotive
division -- which includes the BMW, MINI and Rolls-Royce brands --
and a drop of 18% at its motorcycle unit. The pretax profit margin
fell to 9.4% from 9.5%.
In contrast, BMW benefited from an improved performance from its
financial-services unit and a lower tax charge.
BMW said in its interim report that earnings growth this year
would be "held down by rising personnel costs and high levels of
investment in projects that will ultimately safeguard future
competitiveness."
The shift is illustrated by the company's rising research and
development costs. As a portion of sales, BMW's R&D ratio rose
to 4.7% in the first three months from 4.4% a year ago,
representing an increase in total R&D spending to EUR974
million from EUR926 million a year ago.
Some of that investment will go into technology to lower
emissions and meet tougher regulatory standards in main auto
markets such as Europe, the U.S. and China. BMW is investing in
improving conventional engines, but is also preparing to launch
several plug-in hybrid vehicles and more powerful batteries for its
i3 urban electric vehicle.
BMW is also investing heavily in development of a new type of
car that will be fully self-driving and connected to the Internet
that it hopes to launch around the year 2030.
"Our industry finds itself in the midst of a far-reaching
transformation, " Mr. Krüger said. "We want to take the lead in the
digitization of mobility."
--Friedrich Geiger contributed to this article.
Write to William Boston at william.boston@wsj.com
(END) Dow Jones Newswires
May 04, 2016 02:49 ET (06:49 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.