Bloomberg News

Kia Profit Misses Analysts’ Estimates on Marketing Costs

July 27, 2012

Kia Motors Corp. (000270), South Korea’s second largest carmaker, reported second-quarter profit that missed analysts’ estimates after the company increased marketing costs for new vehicles.

Net income fell 2.8 percent to 1.1 trillion won ($965 million), compared with a revised 1.13 trillion won a year earlier, the Seoul-based company said in a statement today. Profit missed the 1.21 trillion won average of 24 analyst estimates compiled by Bloomberg. Revenue increased 8.4 percent to 12.55 trillion won.

Kia boosted spending on promoting the Pride subcompact in overseas markets to target demand for more fuel efficient models while also increasing marketing of its luxury K9 sedan in South Korea. The higher costs limited the benefit of increased earnings and market share gains in Europe.

“Moving forward, we will have to look into how well Kia manages costs and how the operating margins turn out,” said Lee Jin Woo, senior fund manager at Seoul-based KTB Asset Management Co. that oversees $7 billion in assets including Kia shares. “Although, today’s results are a bit disappointing, I expect Kia to maintain good performance.”

Kia rose 0.1 percent to 76,400 won at the close of trading in Seoul. The benchmark Kospi index rose 2.6 percent.

Operating profit, or sales minus the costs of goods sold and administrative expenses, rose 18 percent to 1.22 trillion won. That missed the 1.27 trillion won average analyst estimate.

“Marketing costs rose as we made some early investments to promote our brand image in overseas markets,” Chief Financial Officer Park Han Woo said on a conference call today.

Labor Strikes

The company will be able to meet its sales target of 2.71 million units this year, said Park. Kia will also be able to produce and sell 3 million units in 2013, he said.

Hyundai Motor Co. (005380), Kia’s biggest shareholder and the country’s largest automaker, yesterday reported a 10 percent increase in second-quarter profit.

The automaker’s earnings announcement comes amid strikes held by the company’s union seeking increased pay and improved working conditions. Kia’s workers together with Hyundai’s union have staged two partial strikes this month.

The company estimates a production loss of 5,450 units amounting to 94 billion won from the partial strikes held on July 13 and July 20.

Overseas Sales

In China, Kia’s deliveries increased as sales of Pride subcompacts rose almost fivefold. Plants in China sold 18 percent more cars, according to data on the company’s website.

Demand in China may slow as major cities of the world’s largest automobile industry impose a quota on new vehicle registrations to control vehicle emissions and ease traffic congestion.

Kia sales jumped 25 percent in Europe, fueled by sales of the Pride and Sportage sport-utility vehicle. By comparison, industry sales in the region shrank 3.2 percent.

The automaker gained the most share in Europe among major automakers, increasing it to 2.7 percent of the market from 2.1 percent a year earlier, according to data compiled by Bloomberg.

Kia’s sales slumped 16 percent in Latin America, while the industry saw a decline of 3.5 percent, according to data compiled by Bloomberg. Sales fell 11 percent in the Asia-Pacific region which excludes South Korea and China, according to company data on its website.

To contact the reporter on this story: Rose Kim in Seoul at rkim76@bloomberg.net

To contact the editor responsible for this story: Young-Sam Cho at ycho2@bloomberg.net


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