VW brand's Q3 gain dives, Porsche lifts group

BERLIN • Volkswagen said third-quarter operating profit at its core brand plunged more than half, adding weight to management calls for cutbacks at VW's biggest division.

Operating profit at the VW namesake brand dropped to €363 million (S$551.7 million) from €801 million a year earlier, it said yesterday, or just 1.5 per cent of sales.

The figure was well below a consensus forecast of €462 million in a Reuters poll of analysts.

Europe's largest carmaker needs to make savings at high-cost operations in Germany to help fund a shift to electric cars and self-driving vehicles, while facing billions of euros in costs from its diesel emissions test-cheating scandal.

"The results reinforce the need for cost cuts at the VW brand," said Commerzbank analyst Sascha Gommel, who has a "hold" recommendation on the stock.

In the seasonally slow July-to-September period, business at the VW brand was marred by suppliers halting parts deliveries to protest against the cancellation of a contract by VW, curbing output of the top-selling Golf and Passat models at the Wolfsburg and Emden plants by about 20,000 units.

Analysts estimated the supplier dispute shaved a three-digit million-euro amount off the brand's quarterly profit and said the carmaker also offered incentives to offset the impact of its emissions scandal on sales.

Year-to-date sales of the VW brand swung back to growth on a 6.7-per-cent gain last month, and it reported the strongest growth in 21/2 years at the group level, helped by strong demand in China and Europe.

The group raised its guidance for profit and revenue this year after posting higher-than-expected quarterly earnings of €3.3 billion, adjusted for special items, reflecting strong gains at premium brand Porsche.

It said it expected revenue to match last year's €213 billion after predicting in July that revenue would fall by as much as 5 per cent this year.

The group's operating margin may come in at the upper end of VW's 5 to 6 per cent target range before special items, it said.

It previously forecast the profitability benchmark to fall within that corridor.

VW's efforts to emerge from the year-long diesel scandal suffered a setback after Audi, its biggest profit contributor, cut its outlook amid rising costs to address the emissions cheating.

The luxury-car unit said that its return on sales this year will be "considerably below" its target of 8 per cent to 10 per cent, rather than missing that range slightly.

Audi took an additional charge of €620 million in the third quarter because of costs for dealing with rigged 3-litre diesel engines and recalling vehicles with Takata airbags.

"Audi's earnings would be under some pressure even without the diesel scandal" amid sluggish demand for the high-volume A4 model, said Mr Juergen Pieper, a Frankfurt-based analyst at Metzler Bank.

Company officials, however, remain upbeat.

VW's finance chief Frank Witter said: "Despite major challenges and the negative impact of the diesel issue, the Volkswagen Group remains on a solid financial footing,"

REUTERS, BLOOMBERG

A version of this article appeared in the print edition of The Straits Times on October 28, 2016, with the headline 'VW brand's Q3 gain dives, Porsche lifts group'. Print Edition | Subscribe