BMW quarterly profit slumps after antitrust charge, outlook weak

by Ike Obudulu Posted on May 7th, 2019

Luxury carmaker BMW AG (BMW.L,BAMXF.PK,BAMXY.PK) reported Tuesday sharply lower profit in its first quarter, hurt by a hefty provision related to ongoing antitrust proceedings, as well as slightly lower revenues. Going ahead for fiscal 2019, the company continues to expect Group profit before tax to be well below the previous year.

As expected earlier, the latest first-quarter results included a 1.4 billion euros of provision on the basis of the Statement of Objections received from the EU Commission in connection with ongoing antitrust proceedings. The Commission is investigating that the German automakers are allegedly colluding to delay the rollout of cleaner-emission cars.

According to the company, the Statement of Objections leads the firm to conclude that it is probable that the EU Commission will issue a significant fine.

BMW said that if necessary it will contest the EU Commission’s allegations with all the legal means at its disposal.

Excluding the set-aside, earnings at the carmaker’s main unit fell by 42 percent to 1.1 billion euros in the first quarter. Price competition in some markets and spending on new technology cut into profit, the luxury carmaker said Tuesday in a statement.

To deal with the pressures, BMW in March announced a 12 billion-euro savings plan, culling models and cutting development time. While the second half of the year should improve with sales of new 3-Series and X7 sport utility vehicles, trade tensions are on the rise again. Orders for the X7 were exceeding all expectations, Chief Executive Officer Harald Krueger said.

The company is also cooperating with Daimler AG in autonomous driving, and the two companies merged their mobility services earlier this year. Though there has been speculation about further cooperation plans, Krueger poured cold water on hopes of a cross-share holding on Tuesday.

“We’re focusing on the current projects, mobility services and autonomous driving, but any sort of cross-share holding I can definitively rule out,” Krueger said in a media call.

BMW will contest the allegations on collusion on cleaner-emission cars by the European Commission with all legal means possible, it said.

For the first quarter, Group net profit fell 74.2 percent to 588 million euros from 2.28 billion euros last year. Earnings per share fell to 0.85 euro from 3.44 euros a year ago.

Group profit before tax amounted to 762 million euros, down 75.7 percent. Profit before financial result or EBIT fell 78.2 percent to 589 million euros. The EBT margin came in at 3.4 percent, compared to 13.8 percent last year.

Automotive segment reported a loss before tax of 27 million euros due to the provision, compared to prior year’s profit before tax of 2.28 billion euros. The segment’s EBIT margin fell by approximately seven percentage points.

First-quarter research and development expenses totaled 1.40 billion euros, up 8.4 percent on the previous year.

Group revenues declined 0.9 percent to 22.46 billion euros from 22.67 billion euros in the prior year. Automotive segment revenues edged down 0.6 percent to 19.21 billion euros.

However, BMW Motorrad revenues grew 11.8 percent to 586 million euros and Financial Services segment revenues grew 8.9 percent to 7.15 billion euros.

First-quarter deliveries of BMW, MINI and Rolls-Royce brand vehicles edged up 0.1 percent to 605,333 units, mainly influenced by the contribution from BMW Brilliance Automotive joint venture in China..

BMW brand delivered 519,307 units, up 0.4 percent units, and Rolls-Royce brand delivered 1,206 vehicles, up 49.4 percent. Meanwhile, deliveries of MINI brand dropped 1.8 percent to 84,820 units.

BMW Motorrad increased deliveries of its motorcycles and maxi-scooters by 7.7 percent to 38,606 units.

Looking ahead for the year, BMW Group continues to expect an EBIT margin in the range of 8 to 10 percent within a stable business environment. Without the effect of the antitrust provision, the company maintained EBIT margin view of 6 percent to 8 percent.

BMW expects a margin in the Automotive segment for 2019 between 4.5 percent and 6.5 percent.

The company also said it is confident of a slight increase in deliveries in the Automotive segment.

By the end of 2022, the company expects to realise potential efficiency savings in excess of 12 billion euros.

In Germany, BMW Group shares were trading at 73.04 euros, down 1.30 percent.

More Tariffs?

U.S. President Donald Trump on Sunday threatened more tariffs on Chinese goods that could prompt retaliatory actions. BMW exports SUVs from its plant in the U.S. to China that are already hit with increased tariffs. The U.S. and China facing off on trade could cost BMW a low three-digit million euro amount this year, Peter said.

BMW caps a mixed earnings season for carmakers. Volkswagen AG’s profit excluding special items rose, defying falling sales in China while Daimler, reporting a 16 percent profit decline, warned it would be tougher to meet annual targets.

“As most companies have done, BMW points towards a stronger second half this year,” Evercore ISI analyst Arndt Ellinghorst said in a note. “We remain skeptical regarding this optimism as we don’t see much stronger end-markets and we remain worried that renewed” trade tensions “in conjunction with CO2 could darken the horizon.”

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