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BMW's Coronavirus Guidance: 2020 Will Be Rough

By John Rosevear - Mar 18, 2020 at 9:12AM

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The company thinks the worst will pass by midyear.

German automaker BMW (BAMXF -1.29%) (BMWYY 0.35%) said that it will shut down its factories in Europe and South Africa until April 19, in response to lower demand and the need to help reduce the risk of spreading the COVID-19 virus. 

The company also said that it expects sales and profit to drop significantly in 2020 as the coronavirus spreads through Europe and North America. But, it said, it thinks that the worst effects will happen in the first half of the year, with improvement later on. 

The statements came at BMW's annual accounts press conference, at which it presented its full-year results for 2019 and gave what guidance it could for the uncertain year that lies ahead.

What BMW's CEO said about coronavirus response

CEO Oliver Zipse said that the company began to shut down production at its plants in Europe, as well as its factory in Rosslyn, South Africa, on Tuesday. All will be closed by the end of this week. As of now, the production halt is expected to run for four weeks, until April 19, he said. 

Zipse is shown on a stage with the BMW i4 concept car, an electric sedan.

BMW CEO Oliver Zipse at the company's annual accounts press conference on March 18, 2020. Image source: BMW.

The Rolls-Royce factory in Goodwood, England, will suspend production for two weeks, starting next Monday, the company said. 

Some BMW dealers in Europe have also closed, Zipse said. The company is also allowing employees who can work from home to do so, and has instituted more flexible work-time rules, he said. 

Zipse said that while the need to keep employees healthy is a high priority, the factory shutdowns will also help the company match supply to demand. Auto sales in western Europe are already falling sharply as measures to slow the spread of coronavirus take hold. 

(We don't have detailed March sales numbers for Europe yet, but auto investors should note that passenger-vehicle sales in China fell 80% in February, when anti-virus measures peaked in that country.)

What BMW's CFO said about the year ahead

CFO Nicolas Peter said that while it's hard to predict exactly how the coronavirus pandemic will play out, he was willing to give some rough guidance for the year ahead.

"Our original planning called for an EBIT [earnings before interest and taxes] margin of between 6 and 8% in the automotive segment for 2020," Peter said. "Due to the deterioration in the sales situation in China and an already visible similar development in other world regions, we anticipate a debiting effect especially in the first half year."

Specifically, for the full year, Peter said that investors should now expect:

  • Automotive EBIT margin in the range of 2% to 4%. (Earlier guidance: between 6% and 8%.)
  • Free cash flow to be "positive." (Earlier guidance: more than 3 billion euros.)
  • Motorcycles' EBIT margin between 6% and 8%, with a "slight decrease" in deliveries from 2019.
  • A "slight decrease" in return on equity in BMW's financial services unit, mainly due to higher provisions for risk. 

Peter said that investors should expect further updates from the company as the pandemic situation unfolds. 

About BMW's 2019 earnings

BMW's earnings presentation was old news, to some extent, as the company had already released the key numbers from its fourth-quarter and full-year 2019 results last week. 

In a nutshell: BMW's fourth-quarter operating income rose 32% from the same period in 2018, to 2.33 billion euros ($2.56 billion), on strong sales of higher-profit luxury models including Rolls-Royces and the BMW 8 Series. 

Despite the good quarter, the company's full-year operating income was down 18% from 2018, because of higher research and development costs and fines paid earlier in the year to settle European Union antitrust charges. 

But on balance, the result was good enough for the management team to propose a dividend of 2.50 euros per share of common stock, down from 3.50 euros last year. 

If it's approved by shareholders in May, the dividend payout will total 1.65 billion euros, for a payout ratio of 32.8% -- within, but near the lower end of, BMW's longtime target range. 

BMW earnings: The raw numbers

All financial figures below are shown in euros. As of March 18, 1 euro = about $1.10. 

Metric Q4 2019 Change vs. Q4 2018 2019 Change vs. 2018
Revenue 29.366 billion 19.9% 104.2 billion  7.6%
Autos sold 665,803 1.4% 2,538,367 2.2%
EBIT 2.332 billion 32.1% 7.411 billion  (17%)
EBIT margin, automotive segment 6.8% 0.5 pp 4.9% (2.3 pp)
Net profit 1.408 billion 6.7% 5.022 billion (28.9%)
Earnings per share (common stock) 2.09 5.6% 7.47 (29.5%)

Data source: BMW AG. EBIT = earnings before interest and tax. Pp = percentage points. 

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