German automaker BMW AG (OTC:BMWYY) (OTC:BAMXF) said on Nov. 6 that its third-quarter operating profit rose 32.9% from a year ago, to 2.29 billion euros ($2.54 billion), on strong demand for high-profit SUVs and cost reductions. 

But despite the strong results, BMW reaffirmed the subdued full-year guidance it issued in May. 

The raw numbers

Metric Q3 2019 Change vs. Q3 2018
Revenue 26.667 billion euros 7.9%
Automobiles delivered 613,361 3.6%
Earnings before interest and tax (EBIT) 2.289 billion euros 32.9%
EBIT margin, automotive segment 6.6% 2.2 pp higher
Net profit 1.546 billion euros 11.5%

Data source: BMW AG. Pp = percentage points.

Why BMW's EBIT jumped almost 33%

There were two factors at work. First, the company performed well, with strong year-over-year sales gains for the X3 and X4 SUVs, a good early result for the big X7 SUV, and some success in an ongoing campaign to rein in costs. 

The other factor is that the third quarter of 2018 was a tough one in which BMW's EBIT fell 27% on recall costs, higher spending on research and development, and expenses related to a change in vehicle-emissions standards in Europe.

Long story short: Good results plus an easy comparison equals great improvement. 

A black BMW X7, a 7 passenger luxury SUV.

Good early sales for the big X7 SUV have helped boost BMW's automotive margin. Image source: BMW AG.

What happened with BMW in the third quarter

  • Automotive sales set a new third-quarter record. Sales in China, where the overall market has been weak, went up 10.1% in the third quarter and are up 14.5% for the year through September. Sales in the U.S. and Germany also remained strong, with good demand for SUVs more than offsetting a decline in sedan sales. 
  • The BMW brand's sales climbed 2.2% in the third quarter, but the mix of products sold was stronger than a year ago. 
  • Worldwide, sales of BMW-brand SUVs were up 25.1% in 2019 through September, while sales of BMW-brand sedans were down over the same period. The change in mix has helped BMW's automotive EBIT margin, as SUVs are generally more profitable than sedans. 
  • Mini-brand deliveries rose 2.6% in the third quarter, to 86,680 vehicles, on good results for the larger Countryman models. Year to date, Mini's sales are down 1.8%.
  • Rolls-Royce deliveries soared 41.6% in the third quarter, to 1,243 vehicles. Strong sales of the all-new Cullinan, the brand's first-ever SUV, have helped boost sales in 2019. Rolls-Royce sales were up 42% to 3,777 vehicles in the first nine months of 2019. 
  • BMW Motorrad, the company's motorcycle division, posted a 9.9% increase in deliveries in the third quarter, to 43,744 units. EBIT got a 6.1% boost to 35 million euros, but the EBIT margin of 6.3% was down from 6.9% a year ago on higher product-development costs. 
  • BMW Financial Services generated pre-tax profit of 597 million euros, up 8.7% on a 3.5% increase in revenue. New retail financing and leasing growth remained solid, with significant growth in China. 

Looking ahead: Full-year guidance confirmed

Despite the good result, BMW still expects its full-year automotive EBIT margin to come in between 4.5% and 6.5%, the range given when it cut its guidance in May after making a 1.4 billion euro provision for a potential fine related to a European Union antitrust action. It still expects a "slight rise" in automotive deliveries in 2019 versus 2018, but reiterated that investors should expect higher costs related to future technologies and emissions compliance to have a negative impact. 

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