October 30, 2017 / 8:19 AM / a year ago

VW brand upbeat as cost cuts, new models boost earnings

BERLIN (Reuters) - Cost cutting and new models such as the Arteon fastback should continue to boost Volkswagen’s (VOWG_p.DE) main car brand in the fourth quarter after it doubled core earnings in July-September, it said on Monday.

FILE PHOTO: Volkswagen's logos are pictured at the 45th Tokyo Motor Show in Tokyo, Japan October 25, 2017. REUTERS/Kim Kyung-Hoon/File Photo

Analysts see reviving the VW brand, which has long suffered from high staff and development costs, as crucial to the group’s ability to recover from its diesel emissions scandal.

The brand said on Monday it expected sales and profits to keep growing in October-December, despite the hit across the industry to demand for diesel vehicles and their resale value in the wake of the German carmaker’s 2015 scandal.

“Our model offensive is increasingly paying off, the turnaround programs in the markets are having an effect,” VW brand chief Herbert Diess said in a statement.

Operating profit at the brand doubled to 728 million euros ($847 million) in the three months to Sept. 30, helped by cost cuts and staff reductions agreed with labor unions last year.

Volkswagen shares were up 2.9 percent to 156.40 euros at 1150 GMT.

By contrast, the group’s premium Audi division (NSUG.DE) said it was bracing for a “demanding quarter” with costs for vehicle overhauls including the high-end A6, A7 and A8 as well as the Q3 and A1 compacts weighing on results.

Audi’s quarterly profit and sales were broadly flat, held back by spending on foreign capacity and electrification of its model fleet.

The VW brand now expects its operating margin to moderately exceed a 2.5-3.5 percent target range this year, it said.

That is in line with the more upbeat profit outlook announced by parent Volkswagen on Friday.

The VW brand is aiming to raise the margin to at least 4 percent by 2020 and 6 percent by 2025 - still lagging some major competitors such as Japan’s Toyota (7203.T) and PSA Group (PEUP.PA).

Brand revenue could increase around 10 percent this year on 2016 levels, VW said, keeping previous guidance and citing demand in markets such as the United States, Brazil and Russia after reporting an 8.3 percent gain in year-to-date revenue.

Fixed costs at the brand were flat in July-September, despite a growing number of model launches which have included the top-of-the-line Arteon and the redesigned Polo subcompact, it said, without being more specific.

Analysts expect VW brand earnings to keep growing next year on the back of more higher-margin sport-utility vehicles such as the all-new T-Roc and redesigned Touareg, as well as the ongoing restructuring efforts.

VW’s upbeat comments echo recent announcements by peers.

Last week, PSA and Renault (RENA.PA) revised up their market outlooks after quarterly revenue increases.

Reporting by Andreas Cremer; Editing by Maria Sheahan and Mark Potter

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