Frankfurt - Volkswagen AG’s push to squeeze costs from its struggling namesake car brand provided a critical lift to earnings as the world’s biggest automaker braces for an unprecedented cash drain from the diesel-cheating crisis.
First-quarter operating profit widened to 7.8 percent of revenue from 6.8 percent a year earlier, Wolfsburg, Germany-based Company said Wednesday in a statement.
The improved margin is key as the carmaker faces a cash outflow this year in the “double-digit billion-euro range” to pay for damages from the emissions scandal.
“These quarterly results represent the first tangible results” of Volkswagen’s spending discipline in the wake of the diesel crisis, Chief Financial Officer Frank Witter said in the statement. Even amid the burden, “we will continue to fight for every single customer.”
Volkswagen is intensifying efforts to rein in bloated costs and revive returns at the namesake VW brand, its largest division. The effort is crucial as the company faces 22.6 billion Euros ($24.7 billion) in spending for fines, buybacks and repairs stemming from the September 2015 revelations that Volkswagen rigged millions of diesel cars to cheat on emissions tests.
Even with the improved first-quarter margin, which trails Daimler AG’s 10.3 percent, Volkswagen stuck to its 2017 forecast of a 6 percent to 7 percent operating return on sales, citing “challenges” from slowing economies, increasing competition and continuing fallout from the scandal.
Volkswagen shares fell 0.9 percent to 143.05 Euros as of 12:59 p.m. in Frankfurt. That pared the stock’s gain this year to 7.3 percent, valuing the manufacturer at 72.5 billion Euros.
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Excluding one-time items, the VW brand’s return on sales jumped to 4.6 percent return from 0.3 percent. That exceeded the 4 percent goal set for 2020. The unit signed a landmark labour agreement last year to trim jobs and save 3.7 billion Euros in expenses. It’s also starting to weed out a convoluted sales structure.
The turnaround at VW makes Volkswagen less dependent on its luxury-car divisions. Porsche’s already-rich operating margin widened to an industry-leading 18.5 percent from 17.4 percent, a level only reached by much smaller, high-end peer Ferrari SpA.
If Ferrari’s multiples were applied to Porsche, its market value would be roughly equivalent to the entire Volkswagen group, according to Arndt Ellinghorst, a London-based analyst at Evercore ISI. But the German automaker’s conglomerate structure “just buries value,” Ellinghorst said in a report to clients.