BMW Sees Annual Profit Unchanged, Hampered by Dollar

March 16, 2005; Bloomberg reporteds that Bayerische Motoren Werke AG, the world's second-largest maker of luxury cars, said profit will be little changed this year because of the dollar's decline and a jump in the price of steel.

Earnings will be at ``approximately'' 2004's level as the new midsize 3-Series boosts sales, Chief Executive Helmut Panke said today in Munich. BMW was expected to report earnings per share of 3.24 euros ($4.32) in 2005 from 3.30 euros last year, according to the mean estimate of 32 analysts polled by Thomson Financial.

``To maintain record profit levels in the car industry at the moment is a positive signal,'' said Gerhard Monsberger, who helps manage about $40 billion at Hansainvest in Hamburg and owns BMW shares. ``There's still good potential this year for the shares with all the new models.''

Panke boosted profit 5 percent to a record 2.22 billion euros last year with new models such as the X3 sport-utility vehicle and the 6-Series coupe, attracting customers from DaimlerChrysler AG's Mercedes. The dollar's 7 percent drop against the euro last year and the doubling of the price of raw materials including steel are putting pressure on earnings, Panke said today.

The Munich-based carmaker's new version of the 3-Series went on sale in Germany this month with a starting list price of 27,100 euros and will be introduced in May in the U.S., the company's largest market. The model has accounted for about 40 percent of the company's vehicle sales. The car competes with the Mercedes- Benz C-Class and Volkswagen AG's Audi A4.

Rising Sales

Unit sales will rise as much as 9 percent this year to a record, Panke said, reiterating comments made earlier this month at the Geneva International Motor Show.

Shares of BMW fell 32 cents, or 0.9 percent, to 34.22 euros after the close of electronic trading in Frankfurt. Last week, the stock rose the most since July after BMW said it will raise its dividend by 6.9 percent and buy back as much as 10 percent of the shares, the first repurchase in the company's history.

BMW's shares have risen 3.1 percent this year compared with a 3.9 percent drop at DaimlerChrysler. Of 40 analysts covering BMW, 24 rate the shares ``buy,'' 14 ``hold'' and two say ``sell.''

``This is a very optimistic signal to say that we'll have the same high level of earnings this year,'' Panke said in an interview before the company's annual earnings press conference today in Munich.

3-Series Demand

The German carmaker's European sales last month gained 24 percent to 49,802 vehicles as dealers stocked up on new 3-Series models. Industry sales fell 4.1 percent in February to 1.05 million vehicles as rising unemployment, higher fuel prices and stagnant economic growth discouraged consumers from making large purchases, the Brussels-based European Automobile Manufacturers Association said today.

The carmaker is investing 19 billion euros over the next five years to expand operations and develop two new vehicles. BMW spent 2.8 billion euros on research and development last year and spent a total of 4.3 billion euros on capital expenditure, or 9.8 percent as a percentage of sales.

Currency fluctuations cost the company at least 100 million euros last year, said Chief Financial Officer Stefan Krause. The company has hedged half of its risk against currency fluctuations this year and the currency impact on earnings will be ``far more negative'' than last year, Krause said. Steel prices have gained 68 percent since the end of 2004.

``They're saying they're confident even with the negative impact of the dollar,'' said Michael Raab, an analyst at Sal Oppenheim who has a ``buy'' rating on the stock. ``BMW is still a buy.''

Steel Prices

Increases in the price of steel and other commodities will start to have affect earnings this year as two- to three-year contracts that car manufacturers have with steelmakers such as ThyssenKrupp AG begin to expire and are replaced with new agreements, said Krause on March 1 in Geneva. Ford Motor Co. and Toyota Motor Corp. are among other carmakers expecting increased steel prices to slow earnings growth this year.

BMW wants to increase sales to 1.4 million vehicles annually by 2008 and expand its BMW product range with two new models. The company will build one of those models in its Spartanburg, South Carolina, plant that currently produces the X5 sport-utility vehicle and Z4 roadster. The other will be built in Germany.

One of the new vehicles will be a ``combination of sports car, coupe and sports-activity vehicle'' with the outer appearance of a coupe, Panke said. The U.S. is expected to be the main market for the car.

Last year, the company added the compact 1-Series to its line- up. The smallest BMW-brand car competes with Volkswagen AG's Golf and the Mercedes A-Class in the largest part of the European car market. The X3 went on sale in January 2004 for $30,000. BMW also sells Rolls-Royce and Mini-brand cars.