BMW reported its first quarter 2016 earnings this week. The main highlights were as follows;
Revenue
Revenues in the first quarter fell 8.8 per cent year on year despite BMW selling 5.9 per cent more cars than in the first quarter of 2015. The decrease in revenue is resulting from pricing pressures as most of the sales growth came mostly from the ‘small’ X1 Crossover. Sales across the more expensive segments were slow due to various factors that include old models and declining consumption patterns.
Competition also played its part as BMW was forced into higher discounting in order to compete with a new Mercedes line-up.
The trend to persist for the rest of the year; BMW are guiding towards a slight increase in revenue for 2016.
Costs
The gross Margin improved from 20 per cent last year to 21.5 per cent. The gain in margin originates mainly from a decrease in Research & development (CAPEX is reported with cost of sales). BMW is guiding towards a five per cent of revenues CAPEX target for the whole year.
Earnings
BMW is currently trading at a low 8x earnings. Earnings will remain under pressure as a subdued economic environment and an increase in competition forces BMW to continue providing discounts on sales. The outlook for 2016 is thus subdued and this may be the year that BMW loses its crown as leading luxury brand.
Outlook
The company has maintained its guidance for 2016. Obviously this guidance assumes normal political and economic conditions. Since 2016 is turning out to be an unusually volatile year, these objectives may turn out to be a little too optimistic this year.
Beyond 2016, BMW’s massive investment in future technology provides ample confidence that BMW will remain a leader in the industry. The next few weeks and months may be an opportunity for the long term investor to add BMW to a diversified portfolio.
Disclaimer: This article was issued by Antoine Briffa, Investment Manager at Calamatta Cuschieri. For more information visit, www.cc.com.mt. The information, view and opinions provided in this article is being provided solely for educational and informational purposes and should not be construed as investment advice, advice concerning particular investments or investment decisions, or tax or legal advice. Calamatta Cuschieri Investment Services Ltd has not verified and consequently neither warrants the accuracy nor the veracity of any information, views or opinions appearing on this website.