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VW Profit Forecast for 2013 Falls Short of Estimates

February 22, 2013

Volkswagen Forecasts Unchanged Operating Profit as Europe Sinks

An employee works on the assembly line at the Audi AG automobile plant in Ingolstadt, Germany. Volkswagen AG is counting on growth in China and the U.S., along with gains in the luxury-car segment with the Audi brand, to offset declining demand in Europe, where competitors are posting losses amid a recession. Source: Audi AG via Bloomberg

Volkswagen AG (VOW), Europe’s largest automaker, forecast that 2013 operating profit will match last year’s level, falling short of analysts’ estimates, as the shrinking auto market in its home region weighs on earnings.

Earnings before interest and taxes, which rose 2.1 percent to 11.5 billion euros ($15.2 billion) in 2012, probably won’t increase this year, Wolfsburg, Germany-based Volkswagen said today in a statement. The average estimate of 14 analysts surveyed by Bloomberg is for 2013 profit of 14 billion euros. The shares dropped 7.1 percent, the most since Oct. 4, 2011.

The manufacturer is “not completely immune to the intense competition and the far-reaching crisis in key European markets,” Chief Executive Officer Martin Winterkorn said in the statement. “Furthermore, uncertainty in the economic environment continues.”

VW is counting on growth in China and the U.S., along with gains in the luxury-car segment with the Audi brand, to help offset declining demand in Europe, where competitors are posting losses amid a recession. Car registrations in the region last month were the least for a January since records began in 1990, following a drop to a 17-year low for all of 2012, according to the ACEA auto-industry association.

“For sure they are affected by the competitive environment in Europe, but this is not the case for other markets,” said Juergen Pieper, an analyst with Bankhaus Metzler in Frankfurt who has a buy rating on the shares. “I expected them to target an increase in operating profit this year. It doesn’t sound very ambitious.”

Forecast Reduced

The carmaker’s forecast today is scaled back from a year- old prediction made in VW’s annual report for growth in 2013 in operating profit. Unchanged earnings this year would mark the first time since 2009 that annual operating profit hasn’t risen.

The carmaker plans to increase the dividend to 3.56 euros a preferred share from 3.06 euros. Net income last year jumped 41 percent to 21.7 billion euros, compared with the 22 billion-euro average analyst estimate. Profit was pushed up by revaluations of VW’s options and stake in Porsche. VW last year bought the 50.1 percent of the sports-car maker that it didn’t already own.

Volkswagen fell 7 percent to 163.80 euros at the close in Frankfurt in the steepest decline since Oct. 4, 2011. That pushed the stock to a 4.9 percent drop this year, valuing the automaker at 74.3 billion euros.

Deliveries Jump

Revenue last year gained 21 percent to 193 billion euros as group worldwide deliveries, also including the Porsche, Skoda and Seat brands, jumped 11 percent to a record 9.07 million cars, sport-utility vehicles and vans. Revenue and vehicle sales will increase again this year, the automaker said.

Growth was propelled by demand for the U.S. version of the Passat sedan, which VW began building in 2011 at a new plant in Chattanooga, Tennessee, and for Audi’s Q3 SUV, which was introduced in October 2011.

VW put a revamped model of its best-selling Golf hatchback on sale in September. The company said in January that it’s adding shifts at its main plant in Wolfsburg to build more of the car for the European market, and it will expand its factory in Puebla, Mexico, to include production of the Golf’s next version in 2014.

Targeting Toyota

The manufacturer has a target of overtaking Toyota Motor Corp. (7203) and General Motors Co. (GM:US) to become the world’s biggest carmaker by 2018. Volkswagen’s market share in Europe rose 1.6 percentage points last year to 24.8 percent as the carmaker’s 1.1 percent drop in sales in the region was less than the industrywide decline.

Second-ranked European competitor PSA Peugeot Citroen posted a 13 percent delivery drop in the region in 2012 and its first operating loss in three years. Detroit-based GM, which owns the Opel and Vauxhall brands in Europe, reported losses in the region that more than doubled last year, bringing its cumulative deficit there since 1999 to $18 billion.

VW outlined an investment program for its automotive division in November totaling 50.2 billion euros through 2015, shortening the calendar from the usual five years because of unpredictability in the European car market.

The spending includes 24.7 billion euros to develop new cars and trucks. VW’s Chinese joint ventures, which aren’t consolidated, will invest another 9.8 billion euros in the period.

Pay Rules

The carmaker is revising wage policies for top executives that caps bonuses, which will now be based on VW earning a minimum operating profit of 5 billion euros, the company said in a separate statement. Additional long-term incentive payments, which will depend on VW reaching its targets for 2018, will be limited to 50 percent of the bonus, it said.

The management board’s total 2012 compensation will amount to about 56 million euros, a drop from 70 million euros for 2011, with Winterkorn earning 14.5 million euros, a 17 percent reduction, VW said.

Cash flow from operating activities fell 5.1 percent to 16.2 billion euros, and net liquidity as of Dec. 31 was 38 percent lower than a year earlier at 10.6 billion euros, Volkswagen said.

The carmaker is scheduled to publish quarterly earnings, including figures by brand, on March 14.

To contact the reporters on this story: Tommaso Ebhardt in Milan at tebhardt@bloomberg.net; Christoph Rauwald in Munich at crauwald@bloomberg.net

To contact the editor responsible for this story: Chad Thomas at cthomas16@bloomberg.net


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