Breadth divergence is a troubling sign for the stock market

BMW shares drop after flagging second half challenges

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Shares in BMW AG fell on Wednesday after the luxury-car maker backed its full-year margin target for the auto business but flagged lower deliveries and softening demand in a difficult second half.

At 0730 GMT, BMW shares traded 4.9% lower at EUR77.14.

The German company said it still expects the earnings before interest and taxes margin for its automotive segment to be between 7% and 9% this year despite cutting the deliveries outlook to slightly below last year’s level. Sales volumes in the second half won’t fully make up for lost volumes due to supply bottlenecks in the first six months of the year but the deliveries decline is expected to be partly offset by positive effects from pricing, mix and the used-car markets, it said.

Consensus estimates are already at the upper end of the range for the auto EBIT margin and investors might have expected a guidance raise, in particular after BMW peer Mercedes-Benz lifted the target for its cars business last week, RBC Capital Markets analyst Tom Narayan said in a research note.

While second-quarter results were solid, BMW sounded a cautious tone on demand for the year as it flagged that orders will normalize toward the end of the year, Bernstein analysts said in a note. Looking ahead, the auto maker had said it expects business conditions to continue to be difficult and “ongoing inflation and interest-rate hikes will continue to shape the macroeconomic environment in the coming months and impact demand.”

BMW’s quarterly group EBIT declined to EUR3.43 billion from EUR5.01 billion the year prior. Company earnings in last year’s second quarter were helped by the partial release of a provision related to European Union antitrust proceedings while earnings this year were hit by headwinds from the consolidation of BMW Brilliance Automotive Ltd. Second-quarter revenue rose 22% to EUR34.77 billion, benefiting from positive pricing, product mix and currency translation effects.

Write to Kim Richters at [email protected]

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