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Weak auto margin leads to BMW first quarter profit slump

Reuters / May 3, 2007 - 8:00 am /

FRANKFURT (Reuters) -- First quarter pretax profit at BMW plunged 34 percent as higher launch costs for new models squeezed margins in its core automotive division, the company said today.

BMW shares slumped on the disappointing results as well as management's warnings that ramp-up costs would only begin to decline in the second half of the year and that raw material prices were higher than originally forecast.

Group earnings before tax fell to 852 million euros ($1.16 billion). But in the automotive division, they plunged 20 percent to 609 million euros ($828.3 million), managing a mere 5.3 percent return on sales that fell far short of last year's 6.8 percent margin.

"We expect business to increase noticeably in the coming months," CEO Norbert Reithofer said in a statement, confirming 2007 pretax profit would rise from last year's record level once a 372 million euros ($505.8 million) one-off gain was excluded.

During a conference call with reporters, BMW finance chief Stefan Krause declined to quantify the impact of launch costs for new models such as the upcoming facelifted 5 series and the 3 series with a retractable hard top, nor specify the burden from depreciation, foreign exchange effects or raw material costs.

BMW has said the extent of its profit growth would largely depend on the development in external factors such as raw material costs and currency headwinds, which combined to wipe out 844 million euros from its income statement last year.

PREMIUM PRICED AT DISCOUNT

"For the most part nothing has changed as far as our expectations go although it appears as if raw material markets are certainly an area where we apparently have to expect more of a burden at the moment," Krause said.

Krause, who expects launch costs to at least stay flat in the current quarter before declining thereafter, said the rise in sales costs of about 50 million euros ($68 million) to 1 billion euros ($1.36 billion) served as a good indication for the drop in profitability.

The Munich-based carmaker has for years enjoyed solid gains in retail volume, breaking vehicle sales records on the back of sporty new models such as the X3 SUV, the 1 series hatchback or the retro Mini subcompact.

Earnings growth and profitability have also been impressive compared to many other European rivals, who have made expensive blunders with product ranges, neglected cost bases or failed to hedge foreign exchange exposure.

But investors have not rewarded BMW's steady growth story, often pricing the German premium carmaker at a discount, even to mass market competitors such as Volkswagen.

Reithofer, who took the helm of BMW in September, has initiated the group's first comprehensive strategic review since 2001 to position it for the coming 10 years.

"BMW is indeed a cheap stock, but as the earnings continue to face downward pressure, we believe the stock is cheap for a reason -- a continuing theme of great products and great company, but from an investment perspective, we believe there are better stocks to own for 2007," Morgan Stanley wrote in a note.
SOURCE: Automotive News
 

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Deja vu (Q1 2004) all over again.

Amazing how BMW's stock is so cheap despite the performance of the last 5/6 years. But the Quantd family will never accept Morgan Stanley and co. advices, nor will they switch to a quarter mentality.
 

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Amazing how BMW's stock is so cheap despite the performance of the last 5/6 years. But the Quantd family will never accept Morgan Stanley and co. advices, nor will they switch to a quarter mentality.
I believe the Quandts like it that way. And who is to say they are wrong? Shareholders and Investors... But these are probably in the eyes of the Quandts, (and myself) parasites who leach off the long term profitability of the company.

Forget the stock price. It's the company that's important. We tend to lose that persepctive when looking at the stock market ticker.
 

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I believe the Quandts like it that way. And who is to say they are wrong? Shareholders and Investors... But these are probably in the eyes of the Quandts, (and myself) parasites who leach off the long term profitability of the company.

Forget the stock price. It's the company that's important. We tend to lose that perspective when looking at the stock market ticker.
Your closing observations are spot on. However, that is not the way us Brits do things of late... Profits and Dividends before people and service hence asset strip and run for so many companies ..... you know it makes sense ...:(
 

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Your closing observations are spot on. However, that is not the way us Brits do things of late... Profits and Dividends before people and service hence asset strip and run for so many companies ..... you know it makes sense ...:(

Er but that's why people invest so they can make a return on their stock and without these people, BMW would never of had they money it needed to build the products people (not myself) are so keen to drive. I personally argee with you by and large, but that's business as ugly as it is.
 

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Yes, but smosquito does have a good point. At one time, stocks were thought of as long term investments and where often held long enough that an investor wouldn't be affected by temporary swings in prices or a down quarter now and then.

The growth of the Internet and day trading has fostered a more widespread notion of short termism among investors that can be detrimental both to the company (causing an unjustified crash in price) and to the investors themselves (cashing out fast for short term gain, without regard to long term value).
 

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Yes, but smosquito does have a good point. At one time, stocks were thought of as long term investments and where often held long enough that an investor wouldn't be affected by temporary swings in prices or a down quarter now and then.

The growth of the Internet and day trading has fostered a more widespread notion of short termism among investors that can be detrimental both to the company (causing an unjustified crash in price) and to the investors themselves (cashing out fast for short term gain, without regard to long term value).
Bob are you not confusing unit and investment trusts (and their US equivalent ) with holding actual shares. I've lost money holding shares but made money buying trusts. The trusts worry about the buying and selling but overall there is a steady return. here has always been lots of buying and selling. Look at history of Leyland Trucks for starters.
 

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I believe the Quandts like it that way. And who is to say they are wrong? Shareholders and Investors... But these are probably in the eyes of the Quandts, (and myself) parasites who leach off the long term profitability of the company.

Forget the stock price. It's the company that's important. We tend to lose that persepctive when looking at the stock market ticker.
Even pension funds? Where else should they invest our pensions in order to get a good return in the long term?
 

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mg_zt_t
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Even pension funds? Where else should they invest our pensions in order to get a good return in the long term?
There's a world of difference between genuine longer term investment ( rare almost extinct in the former green and pleasant) and profit at any cost such as asset stripping, closure and other all the other forms of harmful short termism.
.
 

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There's a world of difference between genuine longer term investment ( rare almost extinct in the former green and pleasant) and profit at any cost such as asset stripping, closure and other all the other forms of harmful short termism.
.
But was it ever any different? Remember the immortal words oy Maynard Keynes

"...in the longterm we are all dead"

We all live in the here and now, our horizons end at our death.
 

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We all live in the here and now, our horizons end at our death.
Rubbish. Take a look at any of the great English country houses....See the avenues of limes/chestnuts/oaks etc? The people who planted them knew that they would be in the ground decades before the concept they were after was realised...

Your horizon may end at your death, but only if you're very short sighted...
 

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Dark One, just out of curiosity do you know how well BMW M-Division has done financially? Is it a profit making entity, or is it seen as more of a 'halo' product division that doesn't have to add extra revenue? I've never really heard much about them in terms of financial performance, and thought your sources might know. Cheers!

I don't have exact figures, but the M cars alongside the 7 series are the biggest profit margin cars.
The only loss making M car to my knowledge was the original M1. The losses of the M1 was one of the reason witch led to the M cars (as in to use knowledge and components to cover/compensate the losses of the M1).

I'll try to find more.
 
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