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New models slash BMW profits
FRANKFURT, Germany (Reuters) -- BMW said on Thursday its pre-tax profit dropped 18 percent in the first quarter, weighed down by the cost of the biggest new model programme in its history, relieving investors who had feared a sharper fall. The German carmaker said lower sales of its core luxury brand combined with new model costs knocked pre-tax profit down to 830 million euros ($943 million), while net income fell 19 percent to 510 million euros. A Reuters poll of 21 analysts had forecast pre-tax profit of 762 million euros, down from more than a billion a year ago. BMW stock, which has outperformed European peers by close to five percent since the start of the year, rose as much as 3.8 percent as the Frankfurt market opened, the sharpest gainer on the German blue-chip DAX. "One has to realise that the first quarter is usually a weak one, so it's a very good basis for the year,'' said HVB analyst Georg Stuerzer, noting that the profit margin at the core auto division had improved from the second half of 2002. Return on sales at the automobile business came in at 7.7 percent, down from 9.6 percent in the period a year ago due to the new model offensive, but up from 5.7 percent in the third quarter of last year. "Despite the exceptionally high level of expenditure in conjunction with the product and market offensive... the BMW Group is still aiming to match previous year's earnings on a full-year basis,'' the company said in a statement. Its focus on making a small number of expensive luxury cars has traditionally kept BMW's profits roaring ahead of mass-market rivals such as VW, but it has tripled the number of model ranges it offers since the early 1990s and will have 11 product lines on offer by the end of the year. Some analysts question whether the change of gear means it will have to live with lower profit margins in the long term, although a pick-up in profits is widely expected in the second half as it unveils an updated 5-series saloon, one of its key profit drivers, a new X3 sports utility and a 6-series coupe. Unlike Volkswagen, which said on Wednesday the strength of the euro had helped hammer its profits down by two thirds in the first quarter, BMW said exchange rates had had no effect on its profits, even though the United States became its largest market for the first time. "We do not expect any effect from exchange rates on profit this year,'' a BMW spokesman said, adding that the company had hedged almost 100 percent of its currency exposure this year. By contrast, the strong euro, which has rallied over eight percent since January after a strong gain in 2002, knocked 400 million euros off VW's pre-tax profit. VW hedges only around 40 percent of its exposure.
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