By Christoph Rauwald
FRANKFURT—BMW /zigman2/quotes/209548467/delayed DE:BMW +0.71% AG said Tuesday second-quarter net profit leapt thanks to booming demand for luxury cars in China along with a recovery of the U.S. market, and reiterated that growth is expected to continue in the second half.
"Sharp sales volume growth on major markets and a high-value model mix are the main reasons for the strong second-quarter performance," BMW Chief Executive Norbert Reithofer said in a statement, adding that the company "improved efficiency significantly in all areas of the company" during the economic downturn.
Net profit in the quarter ended June 30 soared to €831 million ($1.1 billion) from €119 million a year earlier, while revenue increased 18% to €15.35 billion from €12.97 billion.
Exchange-rate fluctuations worked in favor of BMW. With the euro weaker against the dollar, earnings generated in the U.S. and China are inflated when converted into the common currency. The Chinese yuan is effectively pegged to the dollar.
BMW said on Tuesday that it is almost fully hedged against unfavorable currency fluctuations in 2010 and expects its full-year earnings to benefit from favorable exchange rates.
The earnings contribution through favorable exchange rates in 2010 will be "in the low three-digit million euro" range, a BMW spokesman said, which is in line with previous company comments. BMW "used the current situation to build up currency hedging measures" for 2011, he said.
Speaking during a telephone conference with analysts, Chief Financial Officer Friedrich Eichiner described BMW's currency hedging for 2011 as "very solid," but he didn't elaborate further. He noted, however, that BMW has already started to hedge its exposure in 2012.
Earnings before interest and tax, or Ebit, jumped to €1.72 billion from €169 million. The closely watched Ebit margin in the core auto segment was 9.6%. BMW said it still targets a full-year Ebit margin of "more than 5%" in 2010.
The luxury car market was hit hard by the financial crisis and economic downturn, with sales and earnings falling in 2009. However, there has been a faster-than-expected rebound in the segment in recent months.
Sales in the second quarter were up 12.5% annually at 380,412 vehicles. In the first six months, a total of 696,026 BMW, Mini and Rolls-Royce cars were delivered to customers, up 13% compared with the same period last year.
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The recent launch of the new-generation BMW 5-series, a key model both in terms of sales volume and revenue per car, is expected to bolster sales growth in coming months.
The world's best-selling luxury car maker was particularly hard hit by the woes that have embroiled the North American market in recent years, as it was the company's largest sales region until the financial crisis hit.
Last month, BMW lifted its outlook for the full year. Mr. Reithofer confirmed Tuesday that BMW now expects vehicle sales to rise by about 10% on the year to more than 1.4 million cars in 2010, after previously forecasting a rise in the single-digit percentage range to more than 1.3 million cars.
BMW cautioned, however, that the strong growth seen in recent months won't continue at the same pace in the third quarter, partly due to seasonal factors.
"We expect smaller increases in sales world-wide in the third quarter," Mr. Eichiner told journalists.
"On the other hand, the launch of new models—the 5 Series Touring and the 5 Series four-wheel-drive sedan, the X3 and the Mini Countryman—will create additional sales momentum in the U.S. and Europe," he said.
"These markets' share of sales will increase slightly at the expense of China and other emerging markets. This will dampen earnings in the third quarter, in particular," Mr. Eichiner said, referring to rich profit margins reaped in China.
According to previous statements, BMW expects China to overtake the U.K. this year as the company's third-largest market behind Germany and the U.S.
Mr. Reithofer said BMW expects to remain the world's best-selling luxury car maker by sales this year, ahead of German rivals Audi /zigman2/quotes/207972355/delayed DE:NSU +0.63% AG and Daimler /zigman2/quotes/205332368/delayed DE:DAI +1.05% AG's Mercedes-Benz marque.
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