Volkswagen quarterly earnings dented by China, diesel woes

by Ike Obudulu Posted on May 2nd, 2019

German automaker Volkswagen Group (VKW.L,VLKAF.PK,VOW.BE) said Thursday that profit dropped nearly 10% in the first quarter, hit by slowing growth in China, fresh diesel-related charges, and weaker earnings in its core brands. But it surprised a market that had factored in worse news, boosting the company’s share price.

The results, largely in line with analysts’ expectations, are reflective of a global auto industry that is struggling to cope with slower growth in China—the world’s biggest auto market by sales.

Shares of Volkswagen Group were gaining around 5 percent in the German trading after the automotive giant confirmed Thursday its forecast for positive results in fiscal 2019. This was despite reporting weak pre-tax profit in its first quarter reflecting legal risks and lower deliveries, while adjusted operating profit and sales improved.

Chief Financial Officer Frank Witter said, “The Volkswagen Group is once again off to a good start this year. The sales revenue performance and earnings growth in the first three months of the current fiscal year are encouraging. But we have to continue to pick up the pace when it comes to our transformation….We are also facing challenges in connection with increasing global economic risks. Nevertheless, we maintain our targets for 2019.”

For fiscal 2019, Volkswagen continues to expect that deliveries will slightly exceed the prior-year figure amid continuously challenging market conditions. Sales revenue is still expected to be up by as much as 5 percent from last year.

For the Group and the Passenger Cars Business Area, the company forecasts an operating return on sales in the range of 6.5-7.5 percent in 2019. Including special items, the operating return on sales would fall at the lower end of the expected range.

For the first quarter, profit before tax declined to 4.1 billion euros from last year’s 4.5 billion euros. Operating profit was 3.9 billion euros, down from 4.2 billion euros a year ago. The latest results were hurt by negative special items arising from legal risks of 1 billion euros related to its 2015 diesel scandal.

Operating profit before special items improved by 0.6 billion euros to 4.8 billion euros. The operating return on sales before special items rose to 8.1 percent from last year’s 7.2 percent.

Group sales revenue grew 3.1 percent year-on-year to 60 billion euros.

Deliveries to customers, meanwhile, fell 2.8 percent from last year to 2.6 million vehicles.

In the quarter, sales revenue of the Volkswagen Passenger Cars brand was up 7.1 percent to 21.5 billion euros. Operating profit before special items also improved.

At the Audi brand, sales revenue fell to 13.8 billion euros from last year’s 15.3 billion euros, mainly due to the new allocation of sales companies.

Sales revenue at the ŠKODA brand increased 8.2 percent. At the Bentley brand, sales revenue climbed from last year, and the company reported an operating profit, compared to last year’s loss mainly the result of the availability of the new Bentley Continental GT.

Sales revenue generated by Porsche Automotive was weak due to market and production-related declining volumes.

In Germany, Volkswagen shares were trading at 162.70 euros, up 4.94 percent.

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