BMW cruises through first quarter on China demand

FRANKFURT (Reuters) - BMW (BMWG.DE) outshone its rivals with a sharp increase in first quarter sales, fueled by demand for the German group's cars from China and the United States.

BMW, which also owns the Rolls-Royce and Mini brands, said first-quarter operating profit, rose more than fourfold to 1.90 billion euros ($2.8 billion), exceeding the average analyst estimate of 1.51 billion in a Reuters poll.

BMW's strong results echo those of Volkswagen (VOWG_p.DE) and Daimler (DAIGn.DE) whose growth was also driven by demand for cars in emerging markets such as China.

But BMW's auto business proved more profitable.

The operating profit margin at BMW's automobiles business widened to 11.9 percent, ahead of Mercedes-Benz Cars' 9.8 percent and Audi's 10.6 percent, helped by a 21 percent jump in quarterly vehicle sales and lower costs for materials.

Global luxury car makers, from Volkswagen's Audi to Daimler's Mercedes-Benz, have racked up eye-popping sales in China, where a growing army of super-rich is fuelling demand for luxuries such as Gucci handbags and Rolls-Royce cars.

But China's car market -- the world's biggest ahead of the United States -- is expected to cool this year amid rising fuel prices and tighter rules on registration after surging by a third to a record high in 2010.

"Is it sustainable? If Chinese premium sales remain at this level, then yes, at least in 2011," said Bernstein analyst Max Warburton.

PACE SLOWING

BMW aims to post a full-year operating margin in the automobiles business of more than 8 percent, anticipating a slowdown in growth in the second half of the year as the Chinese market's steep rise flattens and Europe stagnates.

"Last year, we grew more than 80 percent in China. I think it is normal that one cannot expect growth at that rate to be upheld in the long run," Chief Executive Norbert Reithofer told journalists during a conference call.

"We expect we will still have a good double-digit growth rate, but it's not going to be above 80 percent anymore."

Business will remain strong in the second quarter before slowing, finance chief Friedrich Eichiner said.

"But we would argue that with markets looking healthier than first thought it could be the surprises are on the upside," Barclays Capital analyst Michael Tyndall said.

The U.S. market, for its part, is lending extra support to the industry with U.S. vehicle sales up nearly 18 percent in April and nearly 20 percent in the first four months of the year.

As gasoline prices in the U.S. near $4 a gallon, consumers there opt for smaller, more fuel-efficient cars, and a push by German carmakers such as BMW and Porsche (PSHG_p.DE) to lower fuel consumption in luxury cars is paying off.

BMW's sales in the United States rose 19.6 percent in April, accelerating slightly from the first quarter thanks to demand for its new X3 offroader, which has been on sale in the country for three months now. (Editing by Hans Peters and Jane Merriman)

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