VW brand recovery powers earnings
German automaker’s profits jump 28% year-on-year in Q1
Volkswagen reported a 28 percent jump in first-quarter operating profit, helped by a return to earnings growth at its core VW brand which has struggled to recover from the German carmaker’s diesel emissions scandal.
Group operating profit came to 4.4 billion euros ($4.7 billion) in the three months to the end of March, compared with 3.4 billion in the year-earlier period, Volkswagen said on Tuesday as it published key financial figures ahead of schedule.
Although the group has bounced back from the scandal and overtook Japan’s Toyota in 2016 to become the world’s biggest selling carmaker, analysts view a turnaround at the VW brand as key to the German automaker’s prospects.
Volkswagen said on Tuesday that first-quarter operating earnings at the VW brand came to around 900 mil- lion euros, up from 73 million in the year-earlier period.
“Causal factors for the Volkswagen brand result include the success of new model introductions, particularly the Tiguan, and a strong financial performance in the West European market,” Volkswagen said in a statement.
“Optimized fixed costs also positively affected the result,” it noted.
DZ Bank analyst Michael Punzet, who has a “hold” recommendation on VW’s stock, said he had expected the brand’s operating profit to come to around 500 million euros.
Volkswagen said its other brands, which include Audi and Skoda, also contributed to the good performance but did not provide details.
The company said it still expected to report a full-year group return on sales of between 6 and 7 percent for this year.
“If Q2 continues to do well, we expect VW to increase its full-year guidance in summer,” said Evercore ISI analyst Arndt Ellinghorst, who had expected first-quarter group operating profit of around 3.8 billion euros.
VW is due to publish detailed firstquarter financial results on May 3.
VW’s core brand will improve profitability and gain market share in 2017 after posting stable operating results in 2016 thanks to cost cuts, Herbert Diess, brand chief executive of VW, said in March.
The namesake brand, the group’s largest by sales, is cutting thousands of jobs via natural attrition, streamlining development processes and reducing the number of parts to revive profitability which has been lagging rivals such as Toyota and PSA Group.
The VW brand in 2016 cut fixed costs by about 300 million euros in Germany alone, destination of over 9 percent of global deliveries of 6 million cars, Diess said at a press conference in March at the Geneva auto show.
“Our work is already paying off. We have put ourselves in an excellent starting position for 2017,” said Diess, who was known as a cost-cutter at BMW before he joined VW in 2015.
Despite progress on cost cuts, brand management and the carmaker’s unions have been struggling to implement a cost-cutting plan dubbed future pact, designed to lift profitability. The brand accounts for nearly half of group sales but no more than 11 percent of its underlying earnings.
VW group swung back to record operating profit before special items in 2016, powered by record deliveries of high-margin Audi and Porsche models.