BMW's 2Q profit slides, dumps profit forecast

Automaker BMW AG said Friday that its second-quarter profit slid nearly 33 percent and abandoned its annual profit forecast, blaming a drop in U.S. sales, rising costs for raw materials and the strong euro.

In a surprise announcement that sent its shares plummeting more than 10 percent, the world's biggest maker of luxury cars, said it earned 507 million euros ($791.5 million) in the April-June period, down nearly 33 percent from the 753 million euros it earned last year.

The Munich-based company said sales fell half a percent to 14.6 billion euros ($22.8 billion) in the quarter compared with 14.7 billion euros a year earlier.

"Business conditions for the automobile industry deteriorated sharply again in the second quarter due to further ongoing steep rises in oil and raw material prices, the weakness of the U.S. dollar, the impact of the international financial crisis and a weaker U.S. economy," the company said in a statement accompanying the earnings.

"We now expect that the pretax return on sales for the year to be at least 4 percent," Chief Executive Norbert Reithofer said.

In May, Reithofer told shareholders said the guidance was contingent on the global economy and the factors tied into it.

"If, however, the situation on the car markets, particularly for preowned cars, does not ease over the course of 2008, there is a risk that this could have a negative impact on BMW group's earnings for the year," he said then.

The move came just a week after Daimler AG reduced its own outlook for the year and said it expected post earnings before interest and taxes from ongoing operations of more than 7 billion euros ($11 billion) in 2008, lower than its previous estimate that pretax profit would be "significantly" more than the 7.7 billion euros it posted in 2007.

Like BMW, Daimler blamed the revision on the rising cost of raw materials, such as oil and steel, along with the stronger euro and a slowing global economy.

BMW said the price-level of preowned cars in the U.S. and hence the level of revenues that can be generated on vehicles returned at the end of leases remained under pressure and was a factor in its profit warning.

In April, BMW said that those same risk provisions related to a drop in used-car prices and fears of possible defaults on leased cars in the U.S. caused it to shave euro236 million from its first-quarter earnings of 487 million euros ($758.45 million).

Also, the expense recognized for provisions and allowances for residual value risks and bad debts increased by 459 million euros ($711 million) "significantly holding down earnings for the first half of the year.

Additionally, the company had charges of 107 million euros ($166 million) related to work force reductions.

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