The independent German car company Bayerische Motoren Werke AG (BMW) has been experiencing higher car sales in the past months this year. The previous sales growth helped boost their 2007 third-quarter net income by 78%. And, it will be contributing to a higher sales outlook for the rest of the year. However, analysts still question the profit margin of the company in its core business.
In a conference call with reporters, Chief Executive Norbert Reithofer mentioned that BMW expects "very strong sales development in the fourth quarter". The company is expecting to have 400,000 vehicles sold for the last quarter this year.
BMW's net profit mounted from â‚?449 million in 2006 to â‚?800 million ($1.16 billion) this year. This increase has been favorably affected by a positive change in Germany's corporate-tax system, which will be implemented in 2008. According to BMW spokesman Mathias Schmidt, the valuation of the company's deferred taxes, prior to change, led to obtain a gain of â‚?38 million in this year's third quarter.
With car sales increased by 13% at 364,564 vehicles, BMW's revenue also increased by 19% from â‚?11.56 billion in 2006 to â‚?13.78 this year.
In the first nine months of the year, the number of vehicles sold grew by 7.2% to 1.09 million. This growth is expected to continue as the new BMW 6 Series coupe and convertible models have been released in the third quarter. And within this month, the Mini Clubman and the new BMW 1 Series equipped with quality parts like will hit the market.
Earlier BMW mentioned that it has been aiming for a pretax profit that will exceed the figure of last year. Targets were set to have more than 1.4 million vehicles sold as a car-sales record for the year. And they say, the company is "well on its way" towards achieving that sales-volume targets for the entire year.
Michael Ganal, BMW's new chief financial officer, said he is expecting a "good margin outcome" for the rest of the months this year. He also said there is an expected ease in the earnings impact from start-up costs for new models and unfavorable exchange rates.
Metzler Bank analyst Jurgen Pieper revealed that the third-quarter figures, however, showed a further deterioration of BMW's margins in the auto segment.
According to Merch Finch analyst Robert Heberger, the figures missed expectations, as he pointed out the pretax-profit margin in the auto segment with 5.4% in the third quarter compared from the 5.5% in the same period last year. He said he has been expecting "gradual margin improvement in the quarters and years to come".
In facing profit-margin and currency issues, BMW has recently announced a restructure in management-board. And as part of a broader strategic change, the company has also revealed new sales and profitability targets.
