Germany’s BMW raised its 2010 pretax profit and sales outlook on Tuesday, citing better-than-expected earnings at its automotive business and buoyant luxury car markets around the world.
Shares in BMW and archrival Daimler jumped on the news as robust demand for high-performance autos like the BMW Z4 roadster and the new 5-series continues to rebound from last year’s extremely low levels.
BMW said 2010 pretax profit would “rise more sharply than previously forecast”, as sales volumes increase around 10 percent to more than 1.4 million vehicles as opposed to the “solid” single-digit gain first expected.
The EBIT margin — earnings before interest and tax as a percentage of revenues — would surpass 5 percent in its core automobile business compared to BMW’s initial conservative expectation of a figure in the low single-digits.
“Finally BMW has also raised its outlook. This shows that this development in the auto industry is not just a short term blip but a long term trend,” BHF Bank analyst Alexsej Wunrau said.
Daimler (DAIGn.DE) luxury car brand Mercedes-Benz, which enjoyed a record June sales month, had already raised its earnings expectations in April and then added a bullish bias to its forecast a month later.
“I believe that this will continue at least until the end of the year and I certainly don’t see any signs of this growth trend in the premium auto sector weakening in Europe or the U.S. any time,” Wunrau added.
BMW had said last week it sold 13.7 percent more BMW brand vehicles last month, adding some automotive markets were recovering more quickly than expected.
Both Mercedes and BMW are enjoying a rebound in luxury car markets driven by brand-conscious Chinese buyers, while volume carmakers like Fiat (FIA.MI) are expected to struggle with shrinking demand as scrapping schemes expire.
Unlike Mercedes, however, BMW is just beginning to enter a sweet spot in its model cycle with the recent staggered rollout of the next generation 5 Series and to top it all off, the euro has declined substantially to most main currencies.
Barclay’s Capital nearly tripled its EPS estimate for 2011 for BMW last week, writing that every 1 cent weakening in the euro would add 0.02 to the 0.31 now in its model — assuming hedging rates remain constant.
“BMW is the best positioned of its luxury peers and in our view still has significant upside, despite having outperformed the sector 18 percent in relative terms year-to-date,” the bank wrote last week.
Alex has written for Vanity Fair, Barrons, Bloomberg and Condé Nast Traveler.