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BMW goes for long-term gain, risks some short-term pain

German car maker BMW is set to report higher sales but lower profits when it reports second-quarter results. Executives have said they’ll tolerate this as they go for medium-term growth. Meanwhile, the technical charts point to a potential new leg lower for the shares. 

BMW
Source: Bloomberg

German automotive group BMW is expected to report sales growth but lower profits when it reports its second-quarter results. Revenue is expected to rise to €24.77 billion in the three months between April and June, compared with €23.93 billion a year earlier, according to analysts’ consensus forecasts compiled by Bloomberg. However, net profit could fall by about 8% to €1.6 billion, according to the forecasts.

BMW’s first-quarter profit dropped 2.5% as its mix of vehicles sold swung towards compact cars like the 'X1 SUV' and not the more expensive and recently revamped '7 series'. Competition is also ramping up amongst the premium car makers, with Daimler’s Mercedes and Volkswagen’s Audi openly coveting BMW’s crown as the world’s best-selling premium car brand and Tesla adding to the competition in the US. That’s putting pressure on prices in the US sedan market. The third factor weighing on BMW’s margins is the high level of investment it’s making in new technologies.

'The decisive factor for us is not short-term profit but sustainable, profitable growth,' BMW chief executive officer Harald Krueger said at the time of the first-quarter results.

Forecasts for the second quarter

Measure Q2/16 Estimated (in euros) Q2/15 (in euros)
Revenue 24.77 Billion 23.94 Billion
Net income 1.60 Billion 1.75 Billion
EPS, adjusted 2.60 2.66

 

Technical Analysis
BMW shares have been in a downward channel since March 2015, and only the horizontal trendline at €65.40 initially stopped the descent. The stock has risen recently, but there’s considerable resistance at €78.00. With both trendline and the 40-week moving average providing resistance, it’s likely we will see another move lower before long, and the objective target would again be €65.40.

BMW on weekly basis

BMW chart

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