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Volkswagen Raises Profit But Investors Worry About The Future

Volkswagen Raises Profit But Investors Worry About The Future.

VW Says 2018 Earnings Will Fall A Bit Short Of Earlier Expectations.

Volkswagen profits advanced strongly in the second quarter but investors were more concerned about the impact of new European Union fuel efficiency rules and worries about a possible tariff war’s impact on 2018 profits and the shares fell sharply.

VW shares fell about 7 per cent in the couple of days after the results to a low of €138.50, recovered a bit, then started falling again.

VW left its profit forecast for 2018 unchanged at between 6.5 per cent and 7.5 per cent, although it added operating profit after special items will fall “moderately short” of the expected range.

VW’s operating profit in the second quarter rose 23 per cent to €5.58 billion compared with the same period last year.

During this earnings reporting season General Motors, Ford, Fiat Chrysler Automobiles, Renault and Daimler have all warned about the dangers ahead, which also include increased costs and foreign exchange headwinds and tariff worries.

Only France’s PSA Group seems to be sailing along comfortably making money while others either flounder or seek to excuse their future performance.

Risk to targets
At a financial results press conference Volkswagen Group CEO Herbert Diess said the new rules posed a risk to its profit targets.

VW has warned that up to 250,000 vehicles will be delayed as it races to meet the new regulations, called Worldwide Harmonised Light Duty Vehicles Test Procedure known as WLTP.

Investment researcher Jefferies appreciated Diess’s no nonsense approach.

“We found Dr. Diess comments and answers refreshingly direct, although unhelpful for the shares near term. We took his comments as suggesting that VW would work hard and become more efficient to, in the end, deliver flattish earnings and cash flow in the coming 3 years as margin pressure from electrification and re-investment will cap margin progression for the industry as a whole,” Jefferies analyst Philippe Houchois said.

“This is part of our investment case and confirms in our view that the upside depends on corporate change and potential asset separation,” Houchois said.

Other analysts said the latest figures were strong but partly driven by over production in Europe due to stockpiling ahead of the WLTP rules and won’t be repeated any time soon.


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