BMW Overcomes Cooling in China, Beats Earnings Expectations

NEW YORK (The Street) -- BMW (BAMXYovercame concerns of a slowing Chinese market to post a 21% increase in first-quarter earnings before interest and taxes as revenue jumped 15%.

Earnings at the Munich-based manufacturer of luxury automobiles beat analysts' expectations. 

Analysts had been worried about the company's warnings of slowing growth in the red-hot Chinese market. Nevertheless, BMW managed to maintain its automotive operating profit margin as a function of sales, at 9.5% -- within the 8%-10% goal set forth by CEO Norbert Reithofer, who retires this month.

Regarding the cooling of the China market, Reithofer said in a statement: "We have always said that such a development would come, and so it has. We call this the 'new normal' and of course we considered this situation in our planning."

Reithofer will be succeeded by Harald Kruger, who moves up from the role of management board member in charge of manufacturing.

Despite beating estimates, BMW shares fell in European trading, as did the shares of other major German companies on concerns over Europe's economic troubles in Greece and worries about the euro. Since the beginning of the year, shares are up about 16%, roughly tracking the DAX Index of 30 large German companies.

BMW has dropped prices in China and trimmed production in response to the slowing economy. Consequently, shipments in China in the quarter rose 6.4% compared with the same period a year ago. In 2014, the full-year growth rate was 17% for shipments in China.

BMW leads in the global, closely-fought contest against Volkswagen'a Audi unit and Daimler's (DDAIY) Mercedes-Benz unit in luxury-car sales. For each of the three manufacturers, the race has compelled a spate of new models and vehicle types -- one that BMW has led with a variety of wagons, crossovers, sedans, convertibles and special high-performance editions.

The automaker this year introduced 15 new models, including the latest version of its 7-Series large sedan, which contends against the leader of the category, the Mercedes-Benz S Class. BMW also builds MINI small cars, mostly in Great Britain; the brand's unit sales rose 28%, helped by the introduction since last year of two new variants. Rolls-Royce ultra-luxury vehicles, manufactured in limited number, is the automaker's third product line.

In the U.S., BMW is at the top of the heap, with a hundred different models from which to choose, helping to establish the company as the 11th most valuable brand in the world, according to the Interbrand survey. It ranks just behind Mercedes-Benz.

The models offered in the U.S. range from the $31,200 X1 sDrive28i to the $141,200 760 Li sedan. Lately, BMW and its German competitors have been creating lower-priced models to intercept U.S. buyers who considered their brands out of reach.

The automaker's worldwide manufacturing network has grown vast in recent years. Its biggest assembly plant is located in Spartanburg, S.C., and its dedicated mostly to crossovers and SUVs. BMW also builds vehicles at four assembly plants in Germany, two in China and one in South Africa. Six more plants in developing countries build the vehicles from kits.

The automaker last summer revealed plans for an additional plant in San Luis Potosi, Mexico, costing $1 billion, a move in keeping with those of many automakers that regard the country as prime manufacturing territory due to lower labor costs and numerous favorable trade agreements.

This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.

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