BMW Takes Hit on Emissions Costs -- WSJ
September 26 2018 - 3:02AM
Dow Jones News
By William Boston
This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (September 26, 2018).
BERLIN -- Shares in BMW AG fell by as much as 6% on Tuesday
after the luxury car maker warned that emissions-related costs,
product recalls and fierce price competition amid global trade
disputes would dampen profit this year.
BMW said the main reason for the dimmer outlook was the cost of
adjusting to new global rules for emissions testing to measure
pollutants, greenhouse gas emissions, and fuel economy. The test,
called world harmonized light vehicles test procedure, or WLTP,
came into force in Europe in September and BMW racked up
significant costs earlier in the year to adapt its vehicles to the
new regime.
The profit warning comes amid a flurry of similar concerns from
other companies in the sector, such as rival Daimler AG and
supplier Continental AG, which have spoken out against disruptions
to global markets and supply chains from political tensions and the
U.S.-China trade dispute.
Several industry analysts saw BMW's unexpected warning as a
turning point in the industry, a sign that regulatory challenges
and a volatile global trade environment would further hit sales and
dent corporate profits. Analysts had expected weak auto industry
performance in the three months to October to improve at the end of
the year, but now fear it will continue.
"Today's warning has extinguished the idea that the sector will
rally again after a well-flagged soft third-quarter," said Patrick
Hummel, an automotive analyst at UBS.
Analysts cut their earnings outlook for BMW by about EUR1.2
billion ($1.4 billion), bringing consensus estimates down to about
EUR9.7 billion.
When BMW set its original guidance for 2018 earlier this year,
it said it expected a challenging year on account of around EUR1
billion in upfront costs to develop new technology and currency
headwinds in the "mid-to-high three-digit million euro range."
That assessment now looks optimistic.
The company now said it anticipated full-year pre-tax profit for
the entire company "to show a moderate decrease" from the previous
year and revenue from its automotive businesses to be "slightly
lower."
BMW had previously forecast a slight increase in automotive
revenue and pretax earnings at about the same level as last year.
In 2017, it reported pretax earnings of EUR10.7 billion and
automotive revenue of EUR88.6 billion.
The Munich-based car maker also lowered the guidance on its
profit margin in the automotive segment to "at least 7%" from a
previous estimate of a range of 8% to 10%.
The company also cited increased goodwill and warranty costs
associated with product recalls and the impact of price reductions
on vehicles sold in China in the wake of the continuing trade
dispute between the U.S. and China. However, BMW declined to
quantify the full financial impact of these issues.
The warning sent the company's shares down 5.7% to EUR78.75 in
midafternoon trading in Frankfurt. They later recovered to
EUR80.35, down 4%.
All major European auto makers gave up today's gains in the wake
of BMW's profit warning. The biggest loser was Peugeot SA, which
fell 2.5% after the news, while Fiat Chrysler Automobiles NV was
least hit, falling 0.5%.
Write to William Boston at william.boston@wsj.com
(END) Dow Jones Newswires
September 26, 2018 02:47 ET (06:47 GMT)
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