BMW, the world's largest premium carmaker, reported third-quarter pretax profit that fell far short of market expectations amid a strong euro and higher raw material costs, sending its shares sharply lower.
Earnings before tax rose 6.3 percent to 765 million euros ($1.11 billion), badly missing the average estimate of 913 million euros from a Reuters poll of 20 analysts, due to weaker than expected profits at its core automotive division and a significantly higher loss on its "reconciliations" line.
Its shares fell more than 4 percent, and were down 3.1 percent at 43.40 euros, making BMW the worst performer among both European auto peers and German blue chips.
Regional state bank LBBW said profitability at the automotive unit clearly missed market forecasts while Frankfurt brokerage Equinet pointed to the 135 million euro loss relating to Reconciliations that was more than 100 million worse than the poll estimate.
"The main reason for the weaker than expected result appears to be found in the 'Other & Consolidation' line. This is usually heavily impacted by one-offs and is very difficult to estimate," wrote Tim Schuldt, referring to the non-operating segment that mainly eliminates revenue and profit booked between the group's three divisions but also includes non-recurring items.
Automotive profitability slid 10 basis points to 5.4 percent during the quarter, lagging the 6.0 percent that analysts had forecast.
"Segment earnings were adversely affected by exchange rate fluctuations, higher raw material prices, market launch and production start-up costs for new models and higher research and development costs," the company said in a statement.
On Tuesday, the euro marked a record high to the dollar at above $1.45 and traded less than 1.5 percent off its all-time peak to the Japanese yen.
BMW continues to expect record pretax profit this year, excluding a one-off gain of 372 million euros booked in 2006 from a Rolls-Royce convertible bond.
Taking this into account, the guidance implies pretax profit would have to grow by over a fifth to more than 1.07 billion euros in the final quarter alone following a run rate, or what it has been generating on average, of just 894 million per quarter.
At the end of September and just over a year into the job, Chief Executive Norbert Reithofer unveiled the results of the group's strategic review that should position BMW for profitable growth well into the next decade.
Despite plans to sell significantly more than 2 million cars by 2020, save some 6 billion euros in future costs and lift its core automotive division's operating margin to 8-10 percent by 2012, investors criticized Reithofer's vision as unambitious.
Daimler's Mercedes-Benz Cars reported a loss as recently as the first quarter of 2005 at a time when BMW was still boasting a pretax margin of 7.1 percent. BMW's archrival now targets a 10 percent return on sales by 2010 at the latest.
Prior to Tuesday, BMW's shares had fallen 8.4 percent from session highs the day Reithofer announced his long-term plans, lagging both a 1 percent fall in the German blue-chip DAX and a 4.3 percent gain in the European auto index.