VW reports $6.9B profit, gives cautious outlook

AP News
Posted: Jul 28, 2011 7:27 AM
VW reports $6.9B profit, gives cautious outlook

Carmaker Volkswagen AG said Thursday that net profit more than tripled in the second quarter on booming sales in emerging markets, but its shares slumped after it warned of challenges in coming months.

Net profit reached euro4.78 billion ($6.86 billion), far above the euro1.35 billion recorded in the same quarter a year ago and well above average analyst expectations.

Revenues rose 21.5 percent to euro40.3 billion. Unit sales were up strongly in emerging markets such as Russia, Turkey, South Africa, China and Argentina. U.S. sales also rose, though not by as much.

VW shares however slumped 5.9 percent to euro126 in early afternoon trading in a broadly lower market as investors worried that the company would struggle to keep up its high profitability after it warned about challenges ahead.

The carmaker fell just short of analysts' estimates on operating profit, a key measure of earnings before interest and taxes _ it came in at euro3.17 billion, whereas analysts on average had predicted euro3.21 billion.

Analysts often consider operating earnings a clearer picture of how a company's basic business is developing.

The company warned that the rest of the year could prove challenging. "Volatile interest-rate and exchange rate developments as well as raw materials prices could weaken the positive volume effects," it said in a statement.

Chief executive Martin Winterkorn said that "the coming months will challenge us and demand effort in order to maintain this high level."

Winterkorn's cautious outlook echoed statements from other large industrial firms such as Siemens AG and BASF SE, which also reported profits but foresaw less solid growth in months ahead.

Analyst Max Warburton at Sanford C. Bernstein said that the results show "profitability at an enviably high level" but added that profit margins had not noticeably improved over the admittedly strong results from the first quarter.

Profit margins were 7.9 percent compared with 7.8 percent in the quarter before. Luxury brand Audi remained the company's leader in that category, with a 12.9 percent margin.

Volkswagen has more mass-market brands than competitors Daimler AG and BMW AG, who focus on luxury models that have lower volumes but earn more per vehicle, and its plants are heavily based in higher-wage Europe.

As a result Warburton said the company was "a fundamentally lower return business" than the other two German carmakers and rated the shares "market perform," meaning returns are generally in line with market averages.