BMW Profit Jumps on Gains in Europe

The latest version of the X5 crossover SUV continues to be a big hit for BMW. Global sales were up almost 20% in the third quarter. Image source: BMW

BMW (BAMXF 0.05%) reported a net profit of 1.58 billion euros ($1.73 billion) in the third quarter on November 3. That was an increase of more than 20% from the year-ago period. It was driven largely by a jump in sales in Europe, with some help from the ongoing weakness of the euro versus other major currencies. 

BMW's shares rose more than 2% in early trading in Frankfurt after the news was released. 

BMW results: The raw numbers
All financial results are shown in euros.

The operating (EBIT) profit margin for BMW's automotive unit was 9.1%, down slightly from 9.4% a year ago. BMW targets a margin between 8% and 10%. That compares with third-quarter margins of 8% at Volkswagen's (VWAGY -1.13%) Audi unit, and 10.5% at Daimler's (MBGA.F -0.04%) Mercedes-Benz brand. 

What happened with BMW this quarter?
Simply put, a good gain in European sales helped offset continued sluggish growth in China, as both the BMW and Mini brands had record results for global sales in the third quarter. BMW also continued to benefit from the relative weakness of the euro -- but noted that competitive pressures were increasing in the U.S. as the strong dollar encouraged rivals to boost their efforts.

Sales of BMW-brand vehicles rose 7.1% in the third quarter, with BMW's "X" family of crossover SUVs leading the charge. That's a story we've seen unfolding all year. Year to date through September, sales of the X6 are up 40.5%, while X5 sales rose 19.8%, with almost 126,000 sold. The X4, launched just about a year ago, has also done well, with sales of almost 41,000.

Mini sales were up 6.4% in the third quarter, but sales at the super-premium Rolls-Royce brand were down 6.3% from a very good year-ago result, with 835 cars sold. Headwinds in China's luxury-car market are to blame -- but year to date, Rolls-Royce is still on pace to reach its second-best annual sales result ever.

New models including the S 1000 XR have BMW's motorcycle unit on track for an all-time annual sales record. Image source: BMW.

BMW Motorrad, the company's motorcycle business, posted a 16.3% sales increase for the quarter, with 33,993 units sold. A series of new models, the R 1200 R, R 1200 RS, S 1000 RR, S 1000 XR, and F 800 R, was credited for the boost. BMW noted that Motorrad is on track for an all-time annual sales record, a big milestone for a business that is more than 90 years old. 

What management had to say
After years of white-hot gains, BMW's sales in China are up just 1.9% this year through September. But BMW is determined to ride out the market, and optimistic about its long-term potential.

"The BMW Group has proactively adjusted production in and for China based on a slower growth," CFO Friedrich Eichiner said. "We are also helping Chinese dealers respond to more intense competition through training and other sales-enhancing measures."

Eichiner said that the refreshed 3 Series models, and a new 7 Series sedan, should help in the fourth quarter. He also expects a new version of the small X1 crossover to give results a boost in 2016:

As one of the leading manufacturers in the premium segment, we remain confident about medium- and long-term economic development in China. Chinese customers are discerning: They are brand-conscious, and appreciate the quality of premium products.

BMW continues to do well in the U.S., but Eichiner expressed some concerns about pricing. Competitors are ramping up efforts to increase market share as the overall market appears to be hitting a plateau. "The strong U.S. dollar is ensuring the market stays attractive for foreign suppliers. As a result, competition in the market has intensified significantly." 

He noted that BMW remains committed to an aggressive plan of investment in future products and technology -- a notable contrast to rival Volkswagen, which may be forced to cut spending as it comes to terms with the costs of its emissions cheating scandal. BMW's research and development spending is up 15.3% (to 3.69 billion euros) this year through September, he said.

BMW had net liquidity (cash plus short-term credit lines minus debt) of 10.9 billion euros as of the end of September.

Looking forward
Eichiner reaffirmed BMW's previous guidance: Despite the headwinds in China, he still expects new highs in sales volume, revenue, and earnings. But the "scale of increases" may be held back by several factors, including "macroeconomic uncertainties in Europe," and price competition in the luxury market in the U.S. 

BMW also said in its earnings statement that it "firmly intends to remain the world's leading premium manufacturer of vehicles in 2015." BMW is on pace to maintain a slim advantage over Mercedes-Benz and Audi in worldwide sales this year. But Mercedes, in particular, has come on strong recently, recording surprisingly good growth in China and gains in the U.S. If BMW decides to make an aggressive push to hold its global sales lead as the year comes to a close, that could put pressure on profit margins in the fourth quarter.