FRANKFURT (Reuters) -- BMW posted a 15-percent fall in quarterly pretax profit as pricing pressure, a weak dollar and high raw material prices weighed on the world's biggest premium carmaker.
Second-quarter earnings before tax fell to 916 million euros ($1.12 billion) from 1.08 billion euros a year ago.
"The negative currency impact caused by unfavorable transfer exchange rates, the additional cost of raw materials and more intense competition meant that the record levels achieved in the previous year could not be repeated," BMW said.
Pretax profit at the automobile division tumbled 17 percent to 808 million. The pretax margin there sank to 6.8 percent from 8.4 percent a year ago. BMW also has motorcycles and financial services segments.
"Its 6.8 percent automotive margin was clearly below our estimate of 7.6 percent and the topic that seems to be popping up throughout the quarterly report is pricing pressure," said Dresdner Kleinwort Wasserstein analyst Arndt Ellinghorst. He rates BMW an "add" with a 40 euro price target.
"Most of us were already factoring in currency and raw material effects. With BMW in the middle of its product lifecycle sweet spot, pricing pressure could become a bigger issue as its model range ages in 2006 and 2007," he added.
BMW shares fell 3.3 percent to 38.33 euros in morning trading.
The group reiterated it aimed to keep 2005 group earnings roughly at the same record level as last year despite an expected 6 to 9 percent increase in vehicle sales.
Finance chief Stefan Krause said the hit to profits from currencies should worsen in the course of this year, even though the group had almost entirely hedged its risk from fluctuations in major exchange rates.
"While we could no longer profit here entirely from the very attractive hedging rates from the past, we are nevertheless hedged this year at rates significantly below current spot rates," the CFO said.
Krause also reaffirmed that high raw material prices would hit company profits with a "low triple-digit-million" impact.
"Positive effects from efficiency improvements and the product momentum will act to compensate for these burdens, but as expected there is a time lag in the impact of these effects which leads to a considerable volatility in quarterly results," the CFO said in a conference call with reporters.
BUYBACK DETAILS EXPECTED
Net profit in the quarter slipped 1.2 percent to 663 million euros amid positive effects from one-off tax issues, beating market expectations. Revenues rose 2.1 percent to 12.16 billion.
Free cash flow at BMW's industrial division, which combines its motorcycle and core automobile businesses, rose to 2.67 billion euros in the second quarter from 1.32 billion a year earlier, boosted in part by a 1-billion-euro gain from the final instalment from Ford for BMW's sale of Land Rover.
Thanks in large part to the steady influx of cash, BMW has launched its first ever share buyback, aiming to purchase up to 10 percent of outstanding shares.
"We're in the final stage of making a decision, and will soon announce how and in what extent this authorization (to buy back shares) will be implemented," Krause said.
In July, BMW said group vehicle sales rose 9.4 percent to 646,531 units as BMW brand deliveries gained 8.6 percent to 538,132 and Mini sales rose almost 14 percent to 108,114 cars.
Chief Executive Helmut Panke told journalists that group car sales rose roughly by more than 10 percent in July.
The European relaunch of its best-selling BMW 3 series saloon in March as well as incremental volume from its new 1 series hatchback is expected to help it keep its lead over arch rival Mercedes-Benz this year as the world's most popular luxury car brand.