BMW - now the world's largest premium carmaker - yesterday posted third-quarter pre-tax profits that fell far short of market expectations amid a strong euro and higher raw material costs, sending its shares sharply lower.
Earnings before tax rose 6.3 per cent to 765 million euros (£534.9 million), badly missing the average estimate of 913 million euros (£638.4 million) from a poll of 20 analysts, due to weaker than expected profits at its core automotive division and a significantly higher loss on its "reconciliations" line.
At one point its shares fell more than four per cent, making BMW the worst performer among both European auto peers and German blue chips.
Regional state bank LBBW said profitability at the automotive unit clearly missed market fore-casts while Frankfurt brokerage Equinet pointed to the 135 million euro (£94.4 million) loss relating to reconciliations that was more than 100 million euros (£69.9 million) worse than the poll estimate.
"The main reason for the weaker than expected result appears to be found in the 'other & consolidation' line. This is usually heavily impacted by one-offs and is very difficult to estimate," wrote Tim Schuldt, referring to the non-operating segment that mainly eliminates revenue and profit booked between the group's three divisions but also includes non-recurring items.
Automotive profitability slid 10 basis points to 5.4 per cent during the quarter, lagging the six per cent that analysts had forecast.
"Segment earnings were adversely affected by exchange rate fluctuations, higher raw material prices, market launch and production start-up costs for new models and higher research and development costs," the company said in a statement.
BMW continues to expect record pre-tax profit this year, excluding a one-off gain of 372 million euros (£260.1 million) booked in 2006 from a Rolls-Royce convertible bond.
Taking this into account, the guidance implies pre-tax profit would have to grow by over a fifth to more than 1.07 billion euros (£748.2 million) in the final quarter alone following a run rate, or what it has been generating on average, of just 894 million per quarter.
At the end of September and just over a year into the job, chief executive Norbert Reithofer unveiled the results of the group's strategic review that should position BMW for profitable growth well into the next decade.
Despite plans to sell significantly more than two million cars by 2020, save some six billion euros (£4.19 billion) in future costs and lift its core automotive division's operating margin to between eight and ten per cent by 2012, investors criticised Mr Reithofer's vision as unambitious.
Daimler's Mercedes-Benz Cars reported a loss as recently as the first quarter of 2005 at a time when BMW was still boasting a pre-tax margin of 7.1 per cent. BMW's arch-rival now targets a 10 per cent return on sales by 2010 at the latest.
Prior to Tuesday, BMW's shares had fallen 8.4 per cent from session highs the day Mr Reithofer announced his long-term plans, lagging both a one per cent fall in the German blue-chip DAX and a 4.3 per cent gain in the European auto index.
Meanwhile, analysts poured cold water on speculation that BMW was considering a takeover move for French firm Peugeot, which closed down its Ryton, Coventry, factory late last year.
"Because Peugeot has partnered with just about everybody in the industry, I'm not surprised these rumours come along from time to time," said Michael Tyndall, analyst at Nomura International.
Mr Tyndall said BMW still feels "the pain" from its failed acquisition of former Birmingham-based car maker Rover.
"Taking on board a car maker like Peugeot, whilst I wouldn't necessarily suggest it's in the same state as Rover, there is still a lot of work to be done."
Mr Tyndall said it is much more likely that the two companies would agree to work together on a new platform, given they have already co-operated on developing a new engine - the 1.6-litre engine that drives both the Mini, which is produced at Oxford, and the Peugeot 207. A Paris-based trader said the merger rumour was not new, but could "make sense, as both groups are controlled by family shareholders".
The Peugeot Family Group holds a 30.22 per cent capital stake in the French car maker and the Quandt family owns 46.6 per cent of BMW.