VW Hoists Profit Target, Predicts Strong Outlook.
VW Brand Profit Margin More Than Doubles.
“if we look at the company’s financials, including these latest Q3 figures, it’s almost like (dieselgate) never happened”
Volkswagen raised its profit target after reporting earnings rose strongly in the third quarter, and investors boosted the share price, believing the company had finally turned the corner after the financially debilitating dieselgate scandal.
VW’s share price zoomed about 3.5 per cent on the day of the profit news, and still kept going in the last days of October. The share price has jumped almost 20 per cent since early September to about €155, and has gained about 60 per cent since the dark days of October 2015, soon after news of dieselgate struck.
Volkswagen EBIT (earnings before interest and taxes) profits rose 15 per cent in the third quarter to €4.13 billion euros compared with €3.75 billion euros in the same period of 2016.
Operating profit, less emissions scandal costs, fell nearly 50 per cent though to €1.72 billion.
“Earnings in the first nine months make us quite optimistic about the year as a whole. This is strong foundation we can build on,” VW finance chief Frank Witter said.
Bernstein Research analyst Max Warburton was ecstatic about the numbers, pointing out that initial news of the dieselgate scandal just over 2 years ago knocked €24 billion from VW’s market capitalization, and that the saga will probably cost the company almost €28 billion.
“Back in 2015, there were fears that the scandal would damage VW irrevocably. But if we look at the company’s financials, including these latest Q3 figures, it’s almost like the scandal never happened. The balance sheet remains robust and cash rich. The top line (sales) continues to grow, Profitability is advancing. It’s extraordinary the way VW seems to have come out of this stronger,” Warburton said.
Investment researcher Evercore ISI also liked what it saw.
Strong underlying profitability
“VW delivered a strong quarter in terms of underlying profitability in core segments, with VW brand reporting a 3.8 per cent margin,” Evercore ISI analyst Arndt Ellinghorst said.
That compares with 1.5 per cent a year ago, and is closing in on VW’s target of at least 4 per cent by 2020.
VW’s name brand is in the midst of an efficiency drive, cutting jobs through natural wastage, ceasing to make unprofitable models and modernising product development.
The Audi subsidiary reported flat profits of 8.9 per cent, while Porsche’s fell a bit to 17.1 per cent compared with the first half.
VW said in a statement that it lifted its annual profit outlook and now expects overall operating margin to moderately exceed its earlier stated target of between 6 and 7 per cent for 2017.
Ellinghorst said he retained his forecast for 2017 of 7.6 per cent.
Citi Research also described VW’s performance as “strong”, and expected the healthy performance to continue.
“Of greater significance to our minds is what’s ahead. VW is investing heavily in future powertrain, but on the back of a swathe of SUVs, which look set to be run-away successes. We stay buyers (of the shares),” said Citi Research analyst Michael Tyndall.
Better things to come
Bernstein Research’s Warburton also felt still better things were ahead.
“Given VW has delivered an underlying 7.8 per cent margin in Q3, the full-year beat may be more than moderate. And to quote Herbert Diess (VW brand CEO) “2018 will be a good year for VW”. Hopes of dramatic change at VW are probably misplaced – but this looks like a very genuine earnings growth story,” Warburton said.