Investors View Volkswagen Results As Small Positive Step.
“The company has achieved respectable results under difficult conditions. 2016 will be a transitional year for Volkswagen that will see us fundamentally realign the group”
Volkswagen investors digested the details of the latest financial results and found that the dieselgate scandal threatened company had made some progress towards recovery.
VW operating profit rose to €3.4 billion in the first quarter from €3.3 billion in the same period of 2015.
Revenues fell 3.4% to €50.96 billion.
VW’s operating profit numbers don’t include the performance of its two Chinese joint ventures, where operating profit fell to €1.2 billion euros from €1.6 billion.
The profit included a gain of €300 million from foreign currency operations. The numbers in this quarter didn’t include any costs from the ongoing dieselgate scandal.
“First quarter results were better than feared but there is still a lot of work to do. The VW brand remains in a challenging situation and we believe the brand is core to the investment case. Obviously VW does not have a huge incentive to show high margins at VW brand given union (wage) negotiations,” said Commerzbank analyst Sascha Gommel.
Investment bank UBS said the most noteworthy news from VW was the company’s own brand reported a profit, even though it was a small 0.3% margin. The overall improvement in profit was driven by strong results at the premium subsidiaries Audi and Porsche, while the mass market Skoda brand performed well.
Morgan Stanley reckoned the latest numbers painted a clearer picture of the road ahead for VW.
“We expect VW will continue to provide incremental plans for cost restructuring at VW brand to recover previous peak margin, although, as ever, we do not expect VW brand to achieve the 6.0% EBIT (earnings before interest and tax) margin original target,” Morgan Stanley analyst Harald Hendrikse said.
He said VW will find it difficult to make financial progress as key markets like China and the U.S. have peaked, and as European sales growth slows in the second half of 2016.
Investment researcher Evercore ISI, in its report on the results headed “Plenty of work to be done”, described the results as mixed and raised questions about the continued weak underlying performance of the VW brand as well as operations in China
VW recorded a record loss last year and the company set aside €16.2 billion euros to fix up to 11 million diesel cars and pay fines and damages from lawsuits after it admitted to cheating U.S. emission tests. Some analysts aren’t convinced that this provision will be anything like enough to meet all the costs involved.
“The company has achieved respectable results under difficult conditions. 2016 will be a transitional year for Volkswagen that will see us fundamentally realign the group,” CEO Matthias Mueller said in a statement.
Volkswagen said it retained its previous forecast for all of 2016, which said revenues will decline by up to 5%, while operating profit margin will be between 5 and 6%, after 6% in 2015.