Bloomberg News

VW Keeps 2013 Profit Forecast After Earnings Meet Estimates (1)

April 24, 2013

Volkswagen AG (VOW), Europe’s biggest automaker, reported first-quarter profit that met analysts’ estimates and retained its 2013 earnings target, providing a relief for investors after Daimler AG (DAI) lowered its forecast.

VW earnings before interest and taxes fell 26 percent to 2.34 billion euros ($3 billion), matching the average estimate of five analysts surveyed by Bloomberg. The carmaker today stuck to a goal for full-year operating profit to be on the same level as 2012. The stock rose as much as 4.5 percent for the biggest gain in nearly four months.

“Business in the first quarter was dominated by the difficult economic environment,” Chief Executive Officer Martin Winterkorn said in a statement. “The markets were sluggish, especially in Europe, and not least in Germany. But we remain confident overall that we can pick up speed over the rest of the year.”

VW has been offsetting a European sales decline, where demand is at a 20-year low, with gains in deliveries in China and the U.S. Daimler, the world’s third-largest maker of luxury vehicles, earlier today cut its 2013 profit forecast after first-quarter earnings tumbled more than analysts expected, burdened by weaker Mercedes-Benz sales in China.

VW’s first-quarter operating profit was impacted by contingency reserves in the passenger-car and power-engineering units, the automaker said today, without providing details.

Shares Advance

VW shares climbed as much as 6.65 euros, the biggest gain since Jan. 2, to 153.55 euros and were up 2.4 percent as of 1:25 p.m. in Frankfurt trading. The stock has declined 13 percent this year, valuing the company at 68 billion euros. Daimler traded 1.3 percent lower.

“The results were in line with our expectations and it was clearly a positive signal that VW stuck to its full-year earnings guidance,” said Frank Biller, a Stuttgart-based analyst at LBBW who recommends buying VW stock.

VW’s first-quarter net income fell 38 percent to 1.95 billion euros, the automaker said today. Revenue declined 1.6 percent to 46.6 billion euros. Volkswagen released key earnings for the group ahead of tomorrow’s annual general meeting and plans to publish detailed results by brand on April 29.

Ebit at Daimler excluding one-time items will fall this year rather than match 2012’s 8.1 billion euros as previously predicted, the Stuttgart, Germany-based company said in a statement. First-quarter operating profit plunged 56 percent to 917 million euros, missing the 1.06 billion-euro estimate of 11 analysts compiled by Bloomberg.

China Reorganization

Mercedes, in addition to combating slumping demand in Europe, posted a first-quarter sales decline of 11 percent in China as it restructures its business in the country. Mercedes has been falling further behind competitors since losing the top spot in global luxury-car sales to Bayerische Motoren Werke AG (BMW) in 2005 and second place to VW’s Audi in 2011.

Volkswagen is pinning its hopes for keeping up sales volumes on the seventh generation of its best-selling Golf compact, introduced at the end of last year. The Audi premium brand, VW’s largest earnings contributor, has been rolling out the revamped A3 hatchback and will add a sedan version of the model later this year to lure American and Chinese buyers seeking a small car with a separate trunk.

VW eked out a 0.2 percent rise in global deliveries last month to 864,400 vehicles as demand in China and North America more than offset shrinking sales across Europe.

“Markets were weaker than expected in the first quarter, but evidence is increasing that this could have been the trough,” said Daniel Schwarz, a Frankfurt-based Commerzbank AG analyst who recommends buying the stock.

Global Race

Toyota Motor Corp. (7203) outsold all other automakers for a fifth straight quarter as the yen’s depreciation sharpens the Japanese company’s edge over General Motors Co. (GM:US) and VW. Global sales at Toyota, including those of subsidiaries Hino Motors Ltd. (7205) and Daihatsu Motor Co. (7262), reached 2.43 million units in the January- to-March period, spokeswoman Shino Yamada said earlier today. That compares with GM’s 2.36 million units and VW’s 2.27 million vehicles. VW deliveries excludes heavy trucks and buses.

VW wants to overtake GM and Toyota by 2018 at the latest to become the world’s largest automaker.

VW’s presence in China, Brazil and Russia has enabled it to steer through the European industry gloom better than PSA Peugeot Citroen (UG), Europe’s second-largest carmaker. Peugeot is eliminating jobs and closing a factory to end losses as the region’s auto market shows no signs of a rebound.

Peugeot today reported a 6.5 percent decline in first- quarter revenue and said additional cost savings may be necessary next year if the market doesn’t improve.

Factory Investments

VW ramped up investments to boost its manufacturing footprint outside Europe and is rolling out a new modular technology to speed up development and production of new vehicles. It has seven new Chinese plants in various stages of planning, part of $19 billion in investments in production outside Europe expected by 2017. After spending $1 billion on a factory in Chattanooga, Tennessee, the company may further increase U.S. capacity with production of a sport-utility vehicle based on the Crossblue concept.

In addition to expanding its passenger-car operations, Volkswagen is forging a heavy-truck alliance with its Scania and MAN units to benefit from economies of scale through closer cooperation and take on global market leader Daimler. Volkswagen made a low-ball initial offer on March 22 to other holders of MAN stock as it pushes for full control.

VW, which already owns 75.03 percent of the Munich-based company’s voting rights, will offer 80.89 euros per share. Investors who don’t accept the cash offer will receive a guaranteed annual dividend of 3.07 euros per share.

To contact the reporter on this story: Christoph Rauwald in Frankfurt at crauwald@bloomberg.net

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


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