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BMW and the big profit

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BMW, the world's largest premium carmaker, swung to a stronger-than-expected operating profit in its core automobiles segment after demand rebounded from an extremely weak year-ago period.


BMW said on Wednesday that Auto's first-quarter earnings before interest and tax (EBIT) amounted to 291 million euros ($388 million), higher than the 214 million average estimate in a Reuters poll of 16 analysts.

BMW's quarterly EBIT margin at Autos came in at a surprisingly high 2.7 per cent as a result.

Analysts had expected a well-flagged inventory clear-out of old BMW 5 Series models ahead of a March relaunch would boost incentives during the first quarter, with the inevitable deterioration in pricing and profitability.

"We are aiming to achieve significantly higher group earnings in 2010 than in 2009, thus making a tangible step towards achieving the targets we have set for 2012," said Chief Executive Norbert Reithofer in a statement.

Group pretax profit last year was 413 million euros.

Arch rivals Audi and Mercedes also reported substantially better profit margins, earning a return of 5.8 per cent and 7.0 per cent, respectively.

BMW has forecast the Auto segment would earn an operating return on sales in the low single digit percentage range this year, while maintaining roughly the 1.46 billion euros in free cash flow it generated in 2009 once adjusted for one-off spending such as moving pension liabilities off its balance sheet.

The group aims to lift its EBIT margin in Automobiles to 8-10 per cent in 2012, which many analysts consider to be overly optimistic since the goal was set towards the end of 2007 amid the peak of the credit-inflated boom.

Vigorous cost cuts means BMW's fixed cost base is lower than that of 2005, giving it added confidence that it can achieve its profitability targets despite likely selling 200,000 fewer units than initially planned.

BMW argues it is better suited than rivals to benefit from the upturn since the bulk of its high-margin model lines will be relaunched through 2012 amid resurging markets. This year's new 5 Series alone is expected to account for almost one-fifth of BMW brand unit sales.