Luxury car market rebound helps BMW swing to profit

A recovery in luxury car markets led by China drove forecast-beating results at Germany's BMW, forcing the world's biggest premium auto maker to rethink its unambitious earnings target by August.

Shares outperformed European peers .SXAP on Wednesday as BMW completed a trio of quarterly results from German carmakers Daimler and Volkswagen that all exceeded market expectations.

BMW surprised with a 2.7 percent margin at its Automobiles segment for the first quarter after the division's earnings before interest and tax (EBIT) surpassed expectations by 35 percent to hit 291 million euros ($388 million).

An inventory clear-out of old BMW 5 Series models prior to the next generation's European relaunch in late March led some analysts to incorrectly expect higher incentives in the first quarter, with the inevitable deterioration in profitability.

"They are massively restoring pricing. Just from the latest monthly data, their discounts per unit in the U.S. are now 31 percent below the same level of last year -- and this is even before the new 5 Series hits the U.S. in June," Credit Suisse analyst Arndt Ellinghorst said.

He believed the market has been far too bearish -- seeing just a 3 percent EBIT margin at Autos according to a Reuters poll -- and stuck to his forecast for 4.1 percent this year.

"If they have globally a 2,000-3,000 dollar -or euro- better transaction price per vehicle, that's a huge tailwind for these guys," he added, estimating in this case BMW could add nearly 3.5 billion in earnings on sales of 1.35 million vehicles.

BMW raked in half a billion euros in group pretax profit, effectively hitting its 2010 target just three months into the year by significantly exceeding last year's figure.

Chief Executive Norbert Reithofer and finance chief Friedrich Eichiner had to explain why the company, which gave a conservative forecast with only two weeks still to go in the quarter, had not given new guidance like Daimler.