BMW's Net Profits Improve Sevenfold in Q2 to 834 Mil. Euro

The BMW Group has posted an extremely robust second-quarter financial result thanks to a strong recovery in the global premium passenger car market. According to a BMW Group press release, the company managed to post a net profit of 834 million euro (US$1,093 million) in the second quarter, up from the figure of 121 million euro that was posted at the same time last year. Earnings before interest and taxes (EBIT) came in at a hugely improved 1,717 million euro, which equated to a very healthy EBIT margin of 11.2%. This result compared to the figure of 169 million euro that was recorded in the second quarter of 2009. Profit before tax leapt to 1,299 million euro in comparison to last year's figure of 151 million euro. These strong financial results were supported by a sizeable increase in its combined global sales volumes during the April to June period, with the figure increasing by 12.5% y/y to 380,142 units. The combined financial data for the first half of the year was also strong. BMW posted a first-half EBIT of 2,166 million euro up from 114 million euro in the first half of 2009. Profit before tax was euro 1,807 million in comparison to a loss before tax of 47 million euro in the first half of 2009. First-half net profit was also robust, at 1,158 billion euro in comparison to a 31-million-euro loss incurred during the first half of 2009. The combined sales of the BMW Group in the first half, including the BMW, Mini and Roll Royce brands, rose by 13.1% y/y to 696,026 units. Sales revenue during the period pointed to an improved sales mix, most likely fuelled by sales of the new 5-Series, with revenue rising 13.5% y/y to 27,791 million euro. The improvement in model mix was even more amply demonstrated by the increase in revenues of the automobile unit of 26.2% y/y to 13.669 billion euro in the second quarter.

Commenting on the extremely positive second quarter, BMW's chairman Norbert Reithofer said, "Sharp sales volume growth on major markets and a high-value model mix are the main reasons for the strong second-quarter performance. We have also used the economic crisis as a source of opportunity and have improved efficiency significantly in all areas of the company. We have made good progress towards achieving our profitability targets for the year 2012. But we have no intention of resting on our laurels. We are determined to remain on track to make the company sustainably fit for the future."

In terms of brand sales during the first half of the year, BMW brand sales rose by 14.1% y/y to 585,755 units. This highlighted a particularly strong sales performance from the BMW X1, the BMW X5 und X6, the BMW 7-Series and BMW Z4. BMW also confirmed the strong market debut from the aforementioned all-new F10 5-Series. Since its European market introduction in mid-March, the new 5-Series has sold 25,000 units. The 5-D-Series's debut in the U.S. market in June will further help the second-half model mix and profitability. During the first half of 2010, combined 5-Series sales rose by 10.8% y/y to 94,699 units, although this figure also included the last two months of the old E60 5-Series being on sale. The 7-Series sold 30,711 units, a rise of 50%, while Z4 sales rose 74.7% to 14,236 units. Despite the best-selling 3-Series being very much towards the end of its model cycle, it still managed to increase sales volume by 3% in the first half of 2010 to 199,127 units. Mini brand sales climbed by 7.6% in the first half of the year to 109,301 units (2009: 101,534 units). The Mini Countryman will be added to the Mini range in the third quarter and should help fuel further growth in the second half. Rolls-Royce sold more cars during the first half of 2010 than it has in any six-month period since making its return to the market in 2003. With 970 units (2009: 329 units) handed over to customers, the sales volume almost tripled in the first six months of the year.

Outlook and Implications

These results mirror similarly strong results posted by Daimler and the Volkswagen (VW) Group last week and are illustrative of a robust recovery in the global premium passenger car market. BMW's results were particularly strong in comparison to the financial losses that were incurred in the first half and second quarter of 2009, with a strong market recovery in traditional markets such as the United States and Western Europe, supporting these strong financial results, while China remains the growth engine for the premium passenger car market. Sales in Europe rose by 4% y/y to 389,831 units, which was a very strong result given the ending of European car scrappage, although it should be observed that in general terms these schemes had little effect on premium brands due to the higher price point of their products. Sales in the United States increased by 6.4% y/y to 121,912 units, while BMW's sales in China more than doubled to 75,615 units in the first half of the year.

BMW's strong second-quarter and first-half financial results were particularly impressive given the fact that the company's two best-selling model lines, the C-segment 1-Series and the D-segment 3-Series are very much coming towards the end of their model cycles. The 1-Series will be replaced next year, while a radical overhaul is planned for the 3-Series in 2012. Any slowing in demand patterns for these models due to model cycle issues have been counterbalanced by strong sales of the new 5-Series in the second quarter, while the new X1 and the 7-Series have also posted highly positive sales results. The BMW Group believes that strong second-half earnings will be supported by continuing strong demand for these models. The stronger than anticipated development in the global sales environment saw BMW raise its full-year earnings and sales volumes forecasts last month (see Germany: 14 July 2010: BMW Lifts 2010 Financial, Sales Forecast).

BMW is targeting a 2010 EBIT margin of 5% in its Automobile segment, while an 18% return on equity (RoE) is the target for the important financial services unit. These targets are interim goals as it continues to look towards achieving financial goals that are key pledges of its Strategy Number ONE corporate programme, namely an EBIT margin of between 8 and 10% in the automobile division and ongoing RoE of 18% in the financial services unit. However, BMW is still cautious over the outlook for the remainder of the year despite its bullish sales and profitability forecasts. A deterioration in the macroeconomic environment in both Europe and the United States remains a real risk moving into the second half, especially given the negative data emanating from the latter regarding the housing market. IHS Automotive believes that the BMW Group's sales projection of a 10% increase for 2010 is marginally ambitious and that it will undershoot this figure with total sales of 1.32 million units.