BMW Earnings Bounce Back but Industry Woes Remain

By William Boston

BERLIN -- BMW AG returned to profit in the third quarter, helped by cost-cutting and a sales shift to higher-margin sport-utility vehicles, but it warned that Germany's luxury car industry would continue to be squeezed by growing costs and heightened competition.

The manufacturer of BMW, Mini and Rolls-Royce automobiles undertook a large cost-cutting program earlier this year after its profit margin was eroded by slowing sales and the costs of shifting toward electric cars and new self-driving technology.

On Wednesday BMW said its efforts to boost earnings were bearing fruit and could see it achieve annual savings of EUR12 billion by the end of 2022.

"We are performing at a high level in comparison with our competitors and considering the difficult conditions our business is facing," said Nicolas Peter, BMW's finance chief, in a statement." Nonetheless, we aspire to achieve more than that."

BMW said the rise in profit was on the back of strong SUV sales. Net profit in the third-quarter rose to EUR1.52 billion ($1.69 billion) from EUR1.36 billion a year earlier, and its closely watched pretax profit margin in its core automotive business rebounded to 6.6% of sales from 4.4% a year ago.

Revenue in the third-quarter rose nearly 8% to EUR26.7 billion on the back of strong sales in China, where major car makers have struggled due to the slowing economy. New car sales rose 3.6% on the back of higher X3 and X4 SUV sales.

BMW's quarterly earnings were largely in line with analyst forecasts, who noted that the company had already abandoned its outlook for a strong rebound in profit in the second half of the year, and now expect it to hit the low end of its 6% to 8% target for automotive profit margins and lower its annual dividend.

"The third quarter shows that BMW is back to normal, but it is not very inspiring," said Philippe Houchois, an automotive analyst at brokerage Jeffries. "It's a well-run business, but it's a brand that to some extent needs to be reinvented and we're not seeing that yet."

Daimler AG and Audi AG, BMW's rivals in the high-end premium car market, are also facing similar challenges. Daimler is expected next week to unveil a cost-cutting plan to stem the erosion of its profits, while Audi, the luxury unit of Volkswagen AG, is struggling with severe overcapacity at its main plants in Germany.

BMW is at the center of a European antitrust investigation alleging that German auto makers colluded to limit competition in emissions systems equipment, which forced the company to take a EUR1.4 billion ($1.6 billion) charge against earnings earlier this year to cover for potential fines and legal fees. BMW said it would contest the European Union's allegations with all legal means at its disposal.

Mr. Peter said the company would stick to its targets for the full year, which had already been adjusted to lower expectations.

In the first nine months of the year, BMW said net income fell 37% to EUR3.6 billion, and revenue rose 3.4% to EUR74.8 billion as sales rose 1.7% to 1.87 million vehicles.

--Max Bernhard contributed to this article.

(END) Dow Jones Newswires

November 06, 2019 06:23 ET (11:23 GMT)

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