FRANKFURT (Reuters) -- BMW reported a sharper-than-expected drop in third-quarter pretax profit on Thursday as the strong euro, high raw material prices and pricing pressure dogged the world's biggest premium carmaker.
The Munich-based maker of the sporty 3-series car and X5 SUV stuck to its forecast for roughly flat 2005 pretax earnings, but emphasized that it gave itself some wiggle room.
"Since spring we have been asked about this analyst range of plus/minus 10 percent and have said we are coming at this from below," CEO Helmut Panke told reporters. "This is something that I can confirm with exactly the same wording."
Poor results in its core auto business and a loss relating to a bond exchangeable into Roll-Royce PLC shares pushed pretax profit down to 647 million euros ($776.6 million) from 779 million euros a year earlier, well short of an average estimate of 739 million euros in a Reuters poll of 23 analysts.
"Currency factors, high raw material prices and intense competition are all having an adverse impact," Panke said in a statement, but he stressed BMW was taking pains to offset this with sales volume and efficiency gains.
Although rival Porsche has sought earnings growth by taking an 18.5 percent stake in Volkswagen, Panke told reporters that BMW had learned from its disastrous Rover acquisition and would continue its go-it-alone strategy.
"We will proceed under our own power. We are not thinking of link-ups, stakes, takeovers. I can clearly rule out and reject all of these alternatives," he said.
"This (result) clearly shows that BMW -- despite a very young and attractive model lineup -- is unable to translate the strong top line into margins," said Dresdner Kleinwort Wasserstein analyst Jens Schattner, who thought BMW would not be able to match its 2004 pretax profit of 3.55 billion euros.
For the first nine months, group pretax profit fell 12.5 percent to 2.38 billion euros.
This implies an earnings improvement of at least 68 percent to 823 million euros before taxes in the fourth quarter to reach its minimum target, in a period when BMW expects foreign exchange effects alone to be as big a drag on results as in the third quarter.
"Vague full year guidance of 'approximately the same' earnings as last year is unchanged, and unlikely to stop analysts practicing Kremlinology on management tone," Sanford Bernstein analyst Stephen Cheetham wrote in a research note.
CORE BUSINESS DISAPPOINTS
BMW's quarterly automotive pretax profits fell 7.9 percent to 639 million euros despite a 13.5 percent rise in revenues to 11.7 billion euros. The market had forecast a profit of 708 million euros.
Panke told analysts during a conference call, however, that he expects the automotive pretax profit margin of 5.5 percent this quarter to improve due in part to more favorable currencies.
"We are not entering a period of ... stable but significantly lower margins than what we had seen in the past," he said.
The strong euro hurt more in the third quarter than it had in the first half, in part because BMW had used up an old currency hedge, CFO Stefan Krause said, adding a similar currency hit lay ahead in the fourth quarter.
"We still assume that in the future -- in 2006, 2007 -- the dollar will recover again and balance out this relative strong weakening versus the euro," he told a conference call.
He gave no details on plans for currency hedging in 2006.
A fair-value loss on an option related to BMW's 9.1 percent stake in British aircraft engine maker Rolls-Royce PLC via an exchangeable bond had a negative impact of 175 million euros on group earnings in the third quarter.
Pretax profit at Financial Services grew by 18.4 percent to 167 million euros while BMW's motorcycle business swung to a profit of 4 million euros from a loss of 13 million euros.
BMW shares have risen around 7 percent so far this year, lagging their benchmark index's 17 percent rise, and trade at around 10 times estimated 2006 earnings versus nearly 12 times for arch rival DaimlerChrysler.