BMW prioritises profit over sales as second quarter earnings beat forecast

FRANKFURT (Reuters) - BMW BMWG.DE said it would not sacrifice profitability in pursuit of leadership of the premium car market, paving the way for Mercedes-Benz to overtake it as the top seller for the first time in 11 years.

The headquarters of German luxury carmaker BMW is pictured in Munich, southern Germany, January 26, 2016. REUTERS/Michael Dalder/File Photo

BMW has held the annual sales crown since 2005 but has already surrendered the top spot when measured by first half sales. It sold 986,557 of its own brand cars in the period compared with Daimler-owned DAIGn.DE Mercedes-Benz's 1,006,619 cars.

While BMW said it still wants to remain the world’s leading provider of premium vehicles, it will not seek to push sales at all costs, amid pressure on pricing, particularly in the United States.

“We are convinced that profitable growth means much more than just being number one in sales and volume, especially now that players in the premium segment are increasingly using price discounts to gain a competitive edge,” the company’s new Chief Executive Harald Krueger said on a call to discuss second-quarter results.

Increased competition for market share had hit prices by about 40 to 50 basis points, when compared with the year-earlier period, Chief Financial Officer Friedrich Eichiner said.

BMW Group, would keep the title of market leader for a while longer if sales of “multiple brands” were taken into consideration, Eichiner said, hinting that sales of BMW and Mini combined would put the Bavarian company ahead of Mercedes-Benz.

Sales of BMW, Rolls-Royce and Mini vehicles increased by 5.7 percent in the second quarter, with demand for higher-profit offroaders helping to lift the operating margin at the automotive division to 9.5 percent in the quarter, from 8.4 percent a year earlier.

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BMW’s top brass took great pains to underline a track record of consistency, emphasising the fact that the car division’s profitability margin has stayed above 8 percent for the 25th quarter in a row, a feat welcomed by analysts.

"We find it quite remarkable that BMW is effectively the most profitable and stable German premium carmaker despite lower mix and an older fleet compared to its peers in Ingolstadt and Stuttgart," analysts at Evercore ISI said in a note on Tuesday, referring to rivals Audi VOWG_p.DE and Mercedes.

The Munich-based car and motorbike manufacturer’s earnings before interest and taxes (EBIT) rose 7.9 percent to 2.73 billion euros (£2.31 billion) in the quarter ended June, above the 2.65 billion euros forecast in a Reuters poll.

BMW’s capital expenditure for property plant and equipment in the first half of 2016 fell to 1.042 billion euros, down from 1.616 billion euros in the year-earlier period, but would rise by year end, to pay for the launch of new models, the CFO said.

The carmaker did not provide quarterly figures for capital expenditure.

Sales of BMW’s core brand reached 1.91 million in 2015, beating Mercedes-Benz which sold 1.87 million cars last year, and Audi which sold 1.80 luxury vehicles.

Reporting by Edward Taylor; Editing by Maria Sheahan, Georgina Prodhan and Alexandra Hudson