BMW Warns of Tough Trading Conditions; Shares Fall – Wall Street Journal

Posted: Wednesday, May 04, 2016

BMW Chief Executive Harald Krüger pictured in Munich in March. Amid a shift in the U.S. toward SUVs, the company is boosting SUV output and cutting back on sedans.



warned of a tough business outlook for the rest of the year, citing difficulty in reversing declining sales in the U.S. on top of uncertainty in China and Europe.

The sober outlook sent the luxury-auto maker’s stock price down more than 4% despite BMW’s reporting a rise in first-quarter profit.

The year’s challenges include moderating growth in China, political turmoil in Europe and weakening demand in the U.S., together with heightened competition globally in the premium-car segment, BMW Chief Executive Harald Krüger said on Tuesday.

“We expect that the U.S. trend will continue until the summer,” Mr. Krüger said. BMW first-quarter sales in the U.S. fell 11% from the year-earlier period.

Amid a strong shift in the U.S. toward sport-utility vehicles, the German auto maker is now boosting production of SUVs in the U.S. and cutting back on sedans. BMW expects its U.S. business to pick up in the second half of the year.

BMW reported an 8.2% rise in net profit in the first three months of the year despite a slight drop in revenue and a decline in operating profit of its core automotive division.

The auto maker stuck to its forecast for improved sales and earnings this year.

Mr. Krüger had previously warned BMW’s profit growth would slow this year as the company accelerates development of technologies to compete with budding rivals including Tesla Motors Inc.,


Alphabet Inc.


’s Google, Apple Inc. and mobility-service companies like Uber Technologies Inc.

Some industry experts predict that car companies such as BMW will earn a greater share of their future profits from car-sharing, ride-hailing and other mobility services than from the sale of their automobiles. BMW recently shifted its long-term strategy to take advantage of the trend.

“The decisive factor for us isn’t short-term profit but sustainable, profitable growth,” Mr. Krüger said. “From this position of strength, we intend to play a pioneering role in transforming and shaping the world of individual mobility going forward.”

The Munich-based auto maker said first-quarter profit rose to €1.64 billion ($1.90 billion) from €1.52 billion a year earlier. Revenue slipped 0.3% to €20.85 billion, as currency swings offset a 6% rise in vehicle sales.

Earnings before interest and taxes, a key measure of BMW’s operational performance, fell 2.5% to €2.5 billion. The retreat reflected a 1.7% decline in that measure at the group’s automotive division—which includes the BMW, MINI and Rolls-Royce brands—and a drop of 18% at its motorcycle unit. The pretax profit margin fell to 9.4% from 9.5%.

In contrast, BMW benefited from an improved performance from its financial-services unit and a lower tax charge.

BMW said in its interim report that earnings growth this year would be “held down by rising personnel costs and high levels of investment in projects that will ultimately safeguard future competitiveness.”

The shift is illustrated by the company’s rising research and development costs. As a portion of sales, BMW’s R&D ratio rose to 4.7% in the first three months from 4.4% a year ago, representing an increase in total R&D spending to €974 million from €926 million a year ago.

Some of that investment will go into technology to lower emissions and meet tougher regulatory standards in main auto markets such as Europe, the U.S. and China. BMW is investing in improving conventional engines, but is also preparing to launch several plug-in hybrid vehicles and more powerful batteries for its i3 urban electric vehicle.

BMW is also investing heavily in development of a new type of car that will be fully self-driving and connected to the Internet that it hopes to launch around the year 2030.

“Our industry finds itself in the midst of a far-reaching transformation,” Mr. Krüger said. “We want to take the lead in the digitization of mobility.”

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