By William Boston 

MUNICH-- BMW AG warned of a tough trading outlook for the rest of year, citing difficulty in reversing declining sales in the U.S. in addition to uncertainty in China and Europe.

The sober outlook helped send the luxury auto maker's stock price around 3% lower despite BMW reporting improved first-quarter net profit.

This year would be marked by a number of uncertainties including moderate growth in China, political uncertainty in Europe, and weakening demand in the U.S. together with heightened competition 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 same period the previous year.

In the wake of a strong shift in the U.S. To SUVs, the German automaker is now boosting production of SUVs in the U.S. and cutting back on sedans to meet the change in customer demand. BMW expects the U.S. business to pick up in the second half of the year.

BMW reported a 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 at its core automotive division, though the auto maker stuck to its forecast for improved sales and earnings this year.

Mr. Krüger has previously warned BMW's profit growth would slow this year as the company accelerates development of technologies to compete with new rivals including Tesla Motor Inc., Alphabet Inc.'s Google, Apple Inc. and mobillty-service companies like Uber Technologies Inc.

Some industry experts predict that car companies like 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 in a statement. "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 net profit rose to EUR1.64 billion ($1.90 billion) in the three months to March 31 from EUR1.52 billion in the same period last year on revenue of EUR20.85 billion, down 0.3% after 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, reflecting a 1.7% decline 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 03, 2016 08:32 ET (12:32 GMT)