BMW will miss its 2008 targets, it said today, after it unveiled an unexpected 44 per cent drop in quarterly pretax profit, thanks to worsening industry conditions and big one-off charges.
"Business conditions for the automobile industry deteriorated sharply again in the second quarter due to further ongoing steep rises in oil and raw material prices, the weakness of the US dollar, the impact of the international financial crisis and a weaker US economy," the world's biggest premium carmaker said on Friday.
Chief executive Norbert Reithofer, who had been expected to lower his targets after Daimler cut its 2008 earnings guidance last week, poured cold water on the following year, too.
"We assume that 2009 will be another difficult year full of challenges," he said in a statement.
BMW shares dropped 9 per cent to €26.32 in early trade.
"We had expected an additional risk provisioning in Q2 and a profit warning for the full year 2008, but not to this extent," DZ Bank's Michael Punzet told clients in a research note.
BMW now forecast a 2008 pretax profit margin of at least 4 per cent, after previously expecting earnings before tax to exceed last year's adjusted level of €3.78 billion euros ($5.9 billion) that excludes a one-off gain of €97 million linked to a Rolls-Royce convertible bond.
Sinking used car prices forced the company to more than double its risk provisions to €695 million due to lower than expected revenues from cars coming off lease, it said, adding more still could come in the second half.
"Measures aimed at improving residual values and reducing bad debts will be pursued more intensely," BMW said.
It will also scale back its US sales efforts, shifting volumes to more lucrative regions.
"What we like is that the residual value risks are now covering not only the maturities for 2008 but also the years 2009 and 2010," wrote UniCredit analyst Georg Stuerzer.
He added charges are not only for the North American market but also for Western Europe, making additional charges in the coming months very unlikely.
BMW, which also booked a €107 million charge to cut its workforce, said it expected an operating profit (EBIT) margin of about 4 per cent or higher at its core Automobile division.
As an intermediate target, BMW said it aimed to achieve a group return on sales of at least 6 per cent and in the Automobiles segment an EBIT of almost 6 percent or higher.
By 2012, BMW continues to target a return on capital employed (ROCE) in excess of 26 per cent and an EBIT margin of 8-10 per cent for Automobiles.
BMW reported a 43.5 per cent drop in quarterly pretax profit to €602 million, bringing its margin to just 4.1 per cent.