November 3, 2015 / 6:52 AM / 2 years ago

BMW surprises with profit rise as Europe recovers

A BMW emblem is pictured at the 2015 New York International Auto Show in New York City, April 2, 2015. REUTERS/Eric Thayer

BERLIN/FRANKFURT (Reuters) - BMW (BMWG.DE) reported a surprise rise in third-quarter operating income as strong sales in higher-margin core European markets outweighed weak demand in China, keeping profitability within its target range despite high investment in new models.

The company’s automotive operating profit margin slipped to 9.1 percent from 9.4 percent a year earlier, behind rival Mercedes-Benz’s (DAIGn.DE) 10.5 percent but beating Audi’s (VOWG_p.DE) 8.0 percent in the quarter.

The other two premium German carmakers are challenging BMW’s global leadership in luxury car sales, but BMW said it “firmly intends to remain the world’s leading premium manufacturer of vehicles in 2015” ahead of its centenary next year.

Some analysts have criticized the chasing of sales volumes over profitability, which they say was supported last quarter by accounting for more of the upfront development costs over a number of years, flattering the margin.

“The latest emissions scandal at Volkswagen should once again make it clear that size is no virtue in itself,” NordLB analyst Frank Schwope said, referring to widening accusations of air pollution test cheating against VW on Monday.

BMW said on Tuesday it still expected a profit margin in the automotive division of 8-10 percent this year, compared with 9.6 percent in 2014, as well as higher sales and pretax profit.

But the Munich-based group cited a raft of headwinds including heightening competition in the United States, upfront spending on new products and technology as well as rising personnel costs and slowing demand in China.

Finance chief Friedrich Eichiner said he would be “looking in a crystal ball” if he could predict a turnaround in China, where Mercedes is making gains on BMW and market leader Audi.

But he told a call with reporters: “At the moment, our experience is that it seems to be stabilizing .... We are acting on the assumption that we have reached a bottom.”

Shares in BMW, up 10 percent since the emissions scandal broke out at rival VW in September, were down 1.4 percent to 93.07 euros by 0910 ET, underperforming a 0.6 percent weaker German blue-chip index .GDAXI.

BMW’s quarterly sales in Europe, destination of over 40 percent of its deliveries, were up 6.9 percent to 545,062 cars, leading the group to affirm its goal of beating last year’s record 2.12 million sales.

Earnings before interest and tax (EBIT) rose 4.3 percent to 2.35 billion euros ($2.59 billion), BMW said, matching the top-end forecast in a Reuters poll. The poll had predicted on average a 6.3 percent drop in EBIT.

($1 = 0.9077 euros)

Editing by Mark Potter

Our Standards:The Thomson Reuters Trust Principles.
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