MUNICH -- BMW's first-quarter profits slumped after car sales in key markets slowed and the automaker revised a provision for a potential fine for alleged collusion to 1.4 billion euros ($1.6 billion).
Earnings before interest and tax (EBIT) declined 78 percent to 589 million euros compared to a year earlier, BMW said in a statement on Tuesday .
BMW last month made a provision of more than 1 billion euros for a potential anti-trust fine from the European Union’s investigation into alleged collusion on cleaner-emission cars.
Earnings were also weighed down by a 36 percent increase in spending on property, plants and equipment.
The company's automotive division swung to an operating loss for the first time in a decade. Excluding the provision, earnings at the automaker's main unit fell by 42 percent to 1.1 billion euros and delivered an operating margin of 5.6 percent in the first quarter, BMW said.
By contrast the return on sales at Mercedes-Benz passenger cars fell to 6.1 percent, down from 9 percent a year earlier and rival Volkswagen Group said the return on sales for its passenger cars business will be at the lower end of its 6.5 percent to 7.5 percent margin target this year.
In addition to the fine provision, BMW said in a statement that price competition in some markets and spending on new technology shrank profit.
Deliveries of BMW, Mini and Rolls-Royce cars rose by 0.1 percent to 605,333 in the quarter.
BMW is experiencing a weak start to the year due to pricing pressure, trade tensions and trouble from new WLTP emissions tests in Europe that started last year.
The company has announced a 14 billion-euro savings plan, culling models and cutting development time by as much as a third. The automaker will also cut engine and gearbox combinations by 50 percent starting in 2021 in a transition to flexible vehicle architectures.
Brighter second half
The second half of the year should brighten with sales of the revamped 3-series sedan getting underway, as well as the full-size X7 crossover . BMW said orders for the U.S.-built X7 had exceeded expectations.
"We are experiencing the impact of high levels of expenditure in numerous areas affecting the entire automotive sector," CEO Harald Krueger said. The automaker will benefit from tailwinds, especially in the second half of the year, "as numerous new models become available," he said.
Analysts said the results were underwhelming. Shares fell 1 percent after the market opened.
"As most companies have done, BMW points towards a stronger second half this year. We remain skeptical regarding this optimism as we don't see much stronger end-markets," analysts at Evercore ISI said, citing trade tensions and emissions rules as risks.
"BMW has entered a period of weakness. The question is, how long will it last?" said Evercore ISI analyst Arndt Ellinghorst.
"Business is not doing well at BMW," NordLB analyst Frank Schwope said.
BMW struck to its full year outlook of an increase in vehicle deliveries, and its goal of aiming for an EBIT margin of between 8 percent and 10 percent. Due to the antitrust proceedings, it expects a margin in the automotive segment of between 4.5 percent and 6.5 percent.
BMW said it will contest the European Commission's allegations that its participation in industry working groups amounted to anti-competitive behavior. The Commission last month told German automakers they face hefty fines for alleged collusion in the area of emissions-filtering technology.
"The participating engineers from the manufacturers’ development departments were concerned with improving exhaust gas treatment technologies. Unlike cartel agreements, the whole industry was aware of these discussions," BMW said.
BMW did not make secret agreements to the detriment of suppliers or its customers, it said.
Adding to BMW's troubles, U.S. President Donald Trump on Sunday threatened more tariffs on Chinese goods that could prompt retaliatory actions. BMW exports SUVs from its plant in the U.S. to China that are already hit with increased tariffs.
Bloomberg and Reuters contributed to this report