BMW second-quarter profit drops less than expected

BMW on Thursday said higher spending to develop electric and autonomous cars and currency headwinds weighed on earnings before interest and taxes. (Reuters)
Updated 02 August 2018

BMW second-quarter profit drops less than expected

FRANKFURT: German carmaker BMW reported a smaller than expected 6 percent decline in second-quarter operating profit, brushing aside new anti-pollution rules and a global trade conflict which has caused rival Daimler to warn on profits.
BMW on Thursday said higher spending to develop electric and autonomous cars and currency headwinds weighed on earnings before interest and taxes (EBIT), which fell to €2.74 billion ($3.19 billion) in the second quarter but exceeded the €2.69 billion consensus forecast.
“At times when others are struggling, they are rock solid, and they don’t seem to have an issue with WLTP,” Evercore ISI analyst Arndt Ellinghorst said on Wednesday.
Evercore, which has an ‘in-line’ rating on BMW, said the company’s results were solid and unspectacular.
BMW said its automotive EBIT margin narrowed to 8.6 percent, from 10.1 percent in the year-earlier period, even as vehicle deliveries rose 0.7 percent during the same period.
Adjusted for comparability, BMW’s automotive margin came in at 9.3 percent, which was higher than the 9.2 percent recorded by Volkswagen’s Audi and the 9.6 percent for Daimler’s Mercedes, Evercore said.
BMW said it has largely completed converting its fleet to the new Worldwide Harmonized Light Duty Vehicles Test Procedure (WLTP), while VW and Daimler have warned the new standard’s introduction could dent margins.
BMW also said increased efficiency measures had helped offset a triple-digit-million headwind from foreign exchange rates and raw materials.
BMW affirmed its 2018 targets to achieve slightly higher deliveries and revenues in the automotive segment and achieve a group profit before taxes at the previous year’s level.


Analysts urge Canada to focus on boosting the economy

Updated 06 July 2020

Analysts urge Canada to focus on boosting the economy

  • Canada lost one of its coveted triple-A ratings in June when Fitch downgraded it for the first time

TORONTO: Canada should focus on boosting economic growth after getting pummeled by the COVID-19 crisis, analysts say, even as concerns about the sustainability of its debt are growing, with Fitch downgrading the nation’s rating just over a week ago.

Canadian Finance Minister Bill Morneau will deliver a “fiscal snapshot” on Wednesday that will outline the current balance sheet and may give an idea of the money the government is setting aside for the future.

As the economy recovers, some fiscal support measures, which are expected to boost the budget deficit sharply, could be wound down and replaced by incentives meant to get people back to work and measures to boost economic growth, economists said.

“The only solution to these large deficits is growth, so we need a transition to a pro-growth agenda,” said Craig Wright, chief economist at Royal Bank of Canada. The IMF expects Canada’s economy to contract by 8.4 percent this year. Ottawa is already rolling out more than C$150 billion in direct economic aid, including payments to workers impacted by COVID-19.

Further stimulus measures could include a green growth strategy, as well as spending on infrastructure, including smart infrastructure, economists said. Smart infrastructure makes use of digital technology.

“We have to make sure that government spending is calibrated to the economy of the future rather than the economy of the past,” Wright said.

Canada lost one of its coveted triple-A ratings in June when Fitch downgraded it for the first time, citing the billions of dollars in emergency aid Ottawa has spent to help bridge the downturn caused by COVID-19 shutdowns.

Standard & Poor’s, Moody’s and DBRS still give Canadian debt the highest rating. At DBRS, Michael Heydt, the lead sovereign analyst on Canada, says his concern is about potential structural damage to the economy if the slowdown lingers too long.

Fiscal policymakers “need to be confident that there is a recovery underway before they start talking about (debt) consolidation,” Heydt said.

Fitch expects Canada’s total government debt will rise to 115.1 percent of GDP in 2020 from 88.3 percent in 2019.

Royce Mendes, a senior economist at CIBC Capital Markets, said the economy still needs more support.

“Turning too quickly toward austerity would be a clear mistake,” he said.