U.S. News

BMW's Second-Quarter Profit Slips 4.3%


Luxury car maker BMW said Wednesday that its second-quarter profit slipped 4.3 percent, hurt by a strong euro, rising materials costs and the costs of launching new models.

But the Munich-based company said it still expects to sell a record number of cars this year and that its pretax profit would be higher than last year.

Shares of BMW fell more than 5 percent to 43.50 euros ($59.63) in Frankfurt.

BMW earned 753 million euros ($1.03 billion) in the April-June quarter, compared with 787 million euros a year ago. That fell short of the 766 million euros ($1.05 billion) forecast by analysts polled by Dow Jones Newswires.

Sales rose 11 percent to 14.68 billion euros ($20.12 billion) in the quarter, compared with 13.19 billion euros a year earlier as customers from China to the United States opened their wallets for its new models of the Mini and BMW sedans.

The company said that earnings "were held down more than expected as a result of the ongoing weakness of the U.S. dollar and Japanese yen and higher raw material costs" for items such as steel, rubber and petroleum.

"BMW reported disappointing (second-quarter) earnings, below our -- and consensus -- expectations as strong volume growth of 8.5 percent failed to translate into an operating profit increase due to adverse currency impact, higher raw material costs and product launch costs," said Stephen Cheetham, senior research analyst for European autos at London-based Sanford C. Bernstein.

BMW said earlier this year that it will expand its only U.S. plant, in Spartanburg, S.C., to reduce its exposure to the weakened dollar.

In morning European trading Wednesday, a euro bought $1.3625, just two cents off its record high of $1.3852.

"Although conditions remain difficult in some aspects, the BMW Group nevertheless expects to make good progress over the coming months," the car maker said in a statement. "In particular, adverse currency effects are having a greater impact on earnings than previously forecast. However, based on the BMW Group's current assessment, the negative impact will not exceed the previous year's level."

Chief Financial Officer Stefan Krause said BMW was almost fully hedged against unfavorable exchange-rate movements of the euro against major currencies in 2007.

Chief Executive Norbert Reithofer said the company was still on track to post another pretax profit for the year, beating that of last year.

"The company is heading toward a sales volume growth rate in the high single-digit percentage range and a sales volume of over 1.4 million vehicles," he said.

The company said it sold 397,009 cars from its BMW, Mini and Rolls-Royce brands in the second quarter, up 8.6 percent from a year ago.

"Growth came mainly from the 3 series, up 16.7 percent in the quarter; X5, up 65 percent; and Z4, up 27.1 percent; with the 1 series, X3 and 6 and 7 series down," Cheetham said. "Mini sales were up 17.6 percent" compared to the second quarter.