FRANKFURT -- BMW said on Thursday its pre-tax profit dropped 18 percent in the first quarter, weighed down by the cost of the biggest new model program in its history, but the slide was less than investors had feared.
Falling sales of its core luxury brand, in particular its profitable 5-series saloon which is being replaced in July, combined with new model costs, knocked pre-tax profit down to 830 million euros ($943 million) from over a billion a year ago.
"One has to realize that the first quarter is usually a weak one, so it's a very good basis for the year," said HVB analyst Georg Stuerzer, noting that the core auto division's profit margin had improved from the second half of 2002.
CEO Helmut Panke told a conference call profit before and after tax would fall by roughly the same percentage in the second quarter as it had in the first three months, although the effect of new models would kick in thereafter.
Investors took the outlook for the second quarter on the chin, looking forward instead to the unveiling of the revised 5-series, a new X3 SUV and 6-series coupe in the second half, all three of them high-margin products.
"It's actually a bit better than we were expecting for the second quarter," said Merrill Lynch analyst Stephen Reitman, who rates the stock "buy", adding that the group's aim of matching last year's earnings in 2003 was realistic.
"The cost burden has been very clearly articulated and we do know what is coming out in terms of product and the likely volume effect."
BMW's focus on making a small range of expensive luxury cars has traditionally kept its profits roaring ahead of mass-market rivals such as VW. But it has tripled the number of model ranges it offers since the early 1990s and will have 11 product lines on offer by the end of the year.
Some analysts question whether this change of gear means it will have to live with lower profit margins in the long term, although the company insists it expects high returns from all of its models.
Unlike VW, which said on Wednesday first-quarter profits slumped by two-thirds largely due to the strength of the euro, BMW said exchange rates had had no effect, even though the United States became its largest market for the first time.
"For the current year BMW in the dollar markets is absolutely hedged, so the current strength of the euro will not have any effect on this year's result," Panke said, adding that two thirds of the group's exposure was also hedged for 2004.
By contrast, the effect of the euro, which has rallied over eight percent since January, knocked 400 million euros off VW's pre-tax profit. VW hedges only around 40 percent of its exposure.
BMW said it had sold around seven percent fewer own-badge cars in April, but sales of its iconic Mini, a brand salvaged from its disastrous takeover of Britain's Rover in 1994, continued to storm ahead, rising by around a quarter.