BMW Earnings: Revenue Growth and Profitability Disappoint but 2023 Guidance Raised

Narrow-moat BMW reported second-quarter earnings per share of EUR 4.40, missing the EUR 4.68 FactSet consensus EPS estimate by EUR 0.28 but up EUR 0.09 from the EUR 4.31 reported last year. Automotive volume increased 11% as the chip crunch lessened with all regions reporting gains. Despite higher sales volume, automotive revenue rose a disappointing 5% as favorable pricing and mix were offset by negative currency, especially the RMB, USD, and JPY. Consolidated revenue increased 7% to EUR 37.2 billion from EUR 34.8 billion on the 5% automotive increase with motorcycle revenue up 14% and an 18% rise in financial services. Group revenue beat the FactSet consensus by about 1%.

Automotive EBIT was EUR 2.9 billion, increasing 18% from EUR 2.5 billion, while margin expanded 1.0 percentage points to 9.2% from 8.2% a year ago, as increased volume and favorable pricing and mix were offset by increased warranty expense, higher R&D spending, logistics disruption (including chip constraints), and other inflationary cost pressures. Even so, due to increased interest rates, financial services EBIT was EUR 751 million, down 24% from EUR 982 million last year. Group profit before tax rose 8% to EUR 4.2 billion from EUR 3.9 billion last year on improved automotive EBIT while margin was flat at 11.3%. BMW completed a EUR 2 billion share buyback plan and initiated a second EUR 2.0 billion program to be completed by the end of 2025.

Management’s raised 2023 guidance includes a solid increase in automotive volume (up from “slight” and automotive EBIT margin at 9%-10.5% (8%-10% prior). We raised our 2023 automotive volume forecast from a 3% increase to 6% and our industrial EBIT margin assumption to 9% from 8%, the low end of management guidance due to the risks from continuing headwinds. Due to changes in our model and the time value of money, we raised our fair value estimate by EUR 3 to EUR 160. The 4-star-rated shares of BMW trade at an attractive 35% discount to our new fair value.