BMW Profit Rises 1% as Weak U.S. Sales Weigh on Results

Tight supplies of the BMW X5 SUV have held back the brand's U.S. sales this year. Image source: BMW.

German luxury-car makerBayerische Motoren Werke Aktiengesellschaft (NASDAQOTH: BAMXF) -- better known as BMW -- reported on Nov. 4 that its third-quarter pre-tax profit rose 1.1% from a year ago, but earnings in its core automotive division fell 3.9% due to higher costs and a decline in sales in the important U.S. market.

BMW earnings: The key numbers

Metric Q3 2016 Q3 2015 Change
Revenue 23,362 million euros 22,345million euros 4.6%
Units sold: autos 583,499 545,062 7.1%
Units sold: motorcycles 35,290 33,993 3.8%
Earnings before interest and tax (EBIT) 2,380million euros 2,354million euros 1.1%
EBIT profit margin, auto segment 8.5% 9.1% (0.6%)
Net profit 1,821million euros 1,579million euros 15.3%
Operating cash flow, auto segment 2,369million euros 2,246million euros 5.5%

Data source: BMW. 1 euro = $1.11 on Nov. 4.

What happened at BMW during the third quarter?

As noted above, while BMW's overall EBIT profit rose 1.1%, EBIT in its automotive unit -- where 92% of its revenue was generated in the quarter -- fell 3.9% to 1.8 billion euros ($2 billion). Increased costs were a factor: Not only has BMW boosted its spending on electric drivetrains and advanced driver-assist systems (ADAS), it also reported higher labor costs and expenses related to changes to its regional sales mix.

What's that about? BMW underestimated the shift in consumer demand away from sedans and toward SUVs, particularly in the highly profitable U.S. market. It has had to scramble somewhat to increase production of crossover SUV models for North America in hopes of recovering from a sales decline. It hasn't yet: Through September, BMW's U.S. sales were down 8.7% from a year ago. That was also a factor in the year-over-year decline in EBIT.

That said, the struggles that BMW's automotive unit has had in the U.S. have been offset by growth elsewhere in the world. Through September, BMW's auto sales in Europe and China were up 10% and 11%, respectively.

BMW Motorrad, the company's motorcycle unit, posted a 3.8% increase in global sales in the third quarter. But its EBIT fell 30.4% from a year ago to 32 million euros, on costs related to new product-development and unfavorable exchange-rate swings.

BMW Financial Services, the company's in-house financing arm, earned 576 million euros on an EBIT basis, up 23.9% from a year ago. Its financing and leasing businesses both grew well, with total contracts up 11.2% from a year ago.

What BMW's CEO said about the quarter

In a statement accompanying BMW's earnings report, CEO Harald Krueger emphasized that the company's steady profitability is helping to finance its transition to electric drivetrains.

Krueger alsorevealed that BMW will launch an all-electric Mini in 2019 and a battery-electric version of its X3 SUV in 2020.

Looking ahead

In a statement, CFO Friedrich Eichiner confirmed BMW's full-year guidance. (Author's emphasis added.)

A secret billion-dollar stock opportunity The world's biggest tech company forgot to show you something, but a few Wall Street analysts and the Fool didn't miss a beat: There's a small company that's powering their brand-new gadgets and the coming revolution in technology. And we think its stock price has nearly unlimited room to run for early-in-the-know investors! To be one of them, just click here.

John Rosevear has no position in any stocks mentioned. The Motley Fool recommends BMW. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.