1. BMW posts flat profit as shift to smaller cars erodes margins

BMW posts flat profit as shift to smaller cars erodes margins

BMW reported flat third-quarter operating profit on Friday as a shift to selling smaller vehicles and more intense price competition in the United States ate into profits from sales of its premium cars.

By: | Frankfurt | Published: November 4, 2016 2:41 PM
Shares in BMW were down 2 percent in early trading. (Reuters) Shares in BMW were down 2 percent in early trading. (Reuters)

BMW reported flat third-quarter operating profit on Friday as a shift to selling smaller vehicles and more intense price competition in the United States ate into profits from sales of its premium cars.

Despite a 7.1 percent rise in sales for BMW, Rolls-Royce and Mini-branded cars, the return on sales at BMW’s automotive division fell to 8.5 percent from 9.1 percent a year earlier.

By contrast, archrival Mercedes-Benz Cars’ third-quarter operating margin was 11.4 percent while Audi’s was 6.9 percent for the first nine months.

Shares in BMW were down 2 percent in early trading.

“Operational performance on a group level came in as expected but for automotive below expectations,” DZ Bank analyst Michael Punzet said in a note on Friday.

BMW said the dip in automotive profits was mainly attributable to higher personnel expenses as staff numbers rose 3.6 percent, and changes in the model and regional sales mix for its cars.

Customers are migrating to smaller, less profitable offroaders and BMW’s volume model, the 5-series, is at the end of its lifecycle and competing with a brand new Mercedes-Benz E-class.

BMW said sales conditions in the United States, a market where sales of highly profitable sport utility vehicles has been strong, had become “volatile” in the third quarter, leading sales in the Americas to fall 3.6 percent.

The more competitive sales environment has already forced German premium auto maker Audi to cut its sales forecast for the year and to warn that its operating margin would remain below its 8 to 10 percent target range this year.

On a group level, BMW said its third-quarter earnings before interest and taxes (EBIT) were 2.38 billion euros ($2.64 billion), in line with a 2.37 billion euro consensus estimate in a Reuters poll and little changed from 2.35 billion last year.

The group benefited from a profit boost from its financial services business and a gain from derivatives hedging.

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