Skoda Stuns With Eight Per cent Profit Margin.
VW Boosts Profits
Volkswagen’s sharp rise in third quarter profits were boosted by the usual suspects Audi and Porsche, but investors were hoping to see some evidence the core VW brand was making profit progress, and that the MQB manufacturing system was beginning to deliver its promised bottom line benefits.
The performance from Skoda boded well for eventual progress at VW.
Investors seemed please with the latest numbers, which showed earnings before interest and tax (EBIT) up 16 percent to €3.23 billion euros compared with the same period last year, outpacing the four per cent rate of sales growth.
“The improvement was achieved with positive MQB effects – product cost savings – fixed cost – start-up costs were positive and no incremental currency effects. Both should be sustainable in coming quarters, especially the support from MQB should grow with the Passat ram-up,” said Commerzbank analyst Daniel Schwarz.
Schwarz said the VW brand’s 2.8 per cent profit margin in the third quarter was the third improvement in a row, despite difficult conditions in a weak Europe, collapsing demand in Brazil and Russia, and a lack of product in the U.S.
Schwarz took comfort from what he called Skoda’s stunning performance with an eight per cent EBIT margin. He said currently only 15 per cent of VW brand cars are made on MQB, but 33 per cent of Skodas are. By 2016, 30 per cent of VW brand products will be MQB-based.
Lot of upside at VW
“If MQB is one important driver for Skoda there is a lot of upside in VW brand,” said Schwarz.
Berenberg Bank analyst Adam Hull reckoned that the overall EBIT margin was 6.6 pct in the quarter, 8.7 per cent if the Chinese joint venture was included.
“This is very impressive given the weak point of VW’s model cycle, minimal MQB benefits in Q3, investments in new technologies and muted macro conditions,” Hull said.
Michael Tyndall of Barclays Equity Research was a bit more cautious, and wanted to wait a bit before declaring MQB a success.
“We think the new products, efficiency improvements and critical mass at MQB won’t really take a hold on margins until the second half next year. We’d like to call this a trough in earnings and take a more constructive view, but we think it is too early,” Tyndall said.
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