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Volkswagen results offer rare bright spot in industry gloom

Oct 30 2018 16:52
Christoph Rauwald, Bloomberg

Volkswagen stuck to its profit goals for the year, as robust results from the Porsche luxury brand helped stem the fallout from trade tensions, a cooling Chinese market and new emission tests in Europe.

The German manufacturer’s third-quarter profit also beat expectations in one of the more resilient showings in an otherwise gloomy reporting season for carmakers and suppliers. Progress during the first nine months of the year was "encouraging" even as major challenges remained, VW said on Tuesday. Rivals BMW and Daimler have cut their outlooks.

Carmakers including VW have faced a difficult year as China’s trade spat with the US intensified, adding to profit-sapping spending demands and pricing pressure in Europe.

The obstacles have crushed valuations for autos manufacturers as well as suppliers. VW’s third-quarter bright spot may make for a smoother end of the year, particularly after news that China could kick off stimulus to revive the world’s biggest car market.

"We fight for each and every customer," chief financial officer Frank Witter said in an interview with Bloomberg Television. Deliveries in Europe will still feel the pinch from new emissions-test procedures this month, but sales should improve during November and December.

The second-half of the year is developing "exactly as we expected," he said.

He still anticipates the earnings impact related to the emission tests at more than €1bn for the full year.

Porsche profit

The luxury Porsche brand helped drive a better-than-expected third-quarter result for Volkswagen. Operating profit for the unit jumped 11% during the first nine months of the year on a fresh line-up of models.

VW’s namesake, Audi and Skoda brands struggled with lower sales due to the new emissions-tests regime and spending on new products.

Earnings reaction

Volkswagen rose as much as 5.1% to €149.74, the highest since October 5. The shares traded at €147.62 at 11:54 am in Frankfurt.

Third-quarter operating profit before special items of €3.51bn beat analyst expectations by 9.3%. VW reiterated a goal of operating return on sales between 6.5% and 7.5% excluding special items for the year. That compares with a margin of 7.4% last year.

Given the challenges, VW has become more open to cooperate with other companies - including rivals - to share the cost of developing technology such as self-driving vehicles, Witter said on a call with reporters. However, the company is stopping short of deeper structural changes beyond preparing the Traton trucks division for a separate listing.

VW has no plan to expand the free float at the Audi premium-car brand, the group’s largest profit contributor in absolute terms, to raise fresh funds, he said. Witter also dismissed recent deliberations by Porsche CFO Lutz Meschke about a potential separate listing of the group’s most profitable brand.

"We’re not working on a Porsche IPO. I think the Porsche brand’s focus should be elsewhere, despite the good results," Witter said. For the group, the coming months "won’t be a walk in the park."

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