VW profit beats estimates as cost cuts counter Europe slump

Volkswagen AG’s second-quarter earnings unexpectedly rose as new models and lower costs helped Europe’s biggest automaker offset slumping car demand in its home region.

Operating profit rose 1.8% to 3.44 bil euros (US$4.56 bil), the Wolfsburg, Germany-based company said in a statement. Analysts were anticipating earnings to decline to 3.07 billion euros, according to the average of 12 estimates compiled by Bloomberg. Sales advanced 8.5% to 52.1 bil euros.

“The numbers look very good,” said Daniel Schwarz, a Frankfurt-based analyst with Commerzbank AG. “VW’s earnings really accelerated in the second quarter,” putting the company “well on track” to achieve its full-year earnings targets.

The second-quarter performance follows a 26% drop in operating profit in the first three months of 2013, trimming its decline for the year. Higher demand worldwide for Audi and Porsche models have helped offset weaker deliveries of mainstream vehicles in Europe, where industry-wide demand is sliding to a 20year low.

Volkswagen’s shares rose as much as 2.2% to 180.05 euros and were up 1.6 % at 10:06 a.m. in Frankfurt trading. The stock has advanced 3.9% this year, valuing the company at 81.1 bil euros.

“We made considerable progress following a subdued start to the year, and can report a solid result in what was a difficult market environment,” chief executive officer Martin Winterkorn said in a statement.

Backed by profits from its growing luxurycar business, Volkswagen stuck to a forecast for full-year operating profit to be on the same level as 2012, even after earnings in the first six months of 2013 declined 12%.

The company expects revenue to rise this year, driven by higher auto sales.

VW expects to outperform global auto markets and intends to progressively bring down costs in the coming quarters by rolling out parts-sharing technology among its brands. The German manufacturer said it won’t be able to escape the impact of weak markets.

“We are not completely immune,” VW said in yesterday’s statement.

“While we shall see positive effects from our attractive model range and strong market position, there will also be increasingly stiff competition in a challenging market environment.”

VW’s net income was 2.83 bil euros in the second quarter, down 50% from a year earlier when a one-time charge related to the acquisition of the Porsche brand boosted the bottom line. - Bloomberg