View Full Version : Greenback slump shaves BMWprofit

11-08-2007, 12:38 PM
From FP18 of the Nov 7 Post

Bayerische Motoren Werke AG is having a head-on collision with the U.S. dollar.

The world’s largest maker of luxury cars posted thirdquarter pretax profit of ¤765million (US$1.1-billion), ¤125million less than estimated by analysts, as a weaker dollar reduced the value of U.S. revenue and research and development costs increased 20%.

BMW makes two-thirds of its cars in Germany and gets about 25% of sales from the United States, its biggest market, where the dollar is trading at an all-time low against the euro. Margins were hurt as steel prices rose and the Munichbased company invested in new models. BMW sold 13% more cars, spurred by a new Mini and X5 sport-utility vehicle.

“The market is disappointed over margin development,” said Juergen Meyer, who helps manage ¤1.3-billion, including BMW shares, at SEB Asset Management in Frankfurt. “When you look at the value of the dollar since the beginning of the year it’s not surprising what has happened.”

Shares of BMW fell ¤1.49, or 3.3%, to ¤43.31, the biggest drop since Sept. 7. The stock has added 0.5% this year, compared with a 59% gain at Daimler AG, the second-biggest maker of luxury cars, and a 119% advance for Volkswagen AG, owner of the Audi luxury brand.

Chief executive Norbert Reithofer reiterated that he expects BMW to report a fullyear pretax profit higher than last year’s record¤3.75-billion. The company needs to earn ¤1.07-billion in the fourth quarter to beat that figure, 20% more than the average for the past three quarters.

Other European carmakers are also suffering. Fiat SpA chairman Luca Cordero di Montezemolo said yesterday the dollar’s weakness was “devastating.” The Ferrari unit of Italy’s biggest carmaker exports 30% to 35% of production to the United States.

BMW’s operating costs jumped 22% to ¤10.9-billion in the third quarter on the dollar and raw-material expenses, the company said. The cost of European hot-rolled 2 millimeter-thick steel increased 16% in the first nine months.

Research and development spending rose 20% to ¤723million as the company invested in developing more fuel-efficient engines.

“The margins are about as bad as we’ve seen,” said Georg Stuerzer, an analyst at Unicredit in Munich with a “hold” recommendation on BMW shares. “The X5 is certainly making a positive contribution, but the fact that sales are rising much faster than profit is disappointing.”

Mr. Reithhofer said the United States is delivering “acceptable” earnings, although margins are not as wide as in 2002, when the dollar was at a high against the euro. The company aims to boost the proportion of parts bought in dollars to compensate for the currency’s decline, he said on a conference call.