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.
Shares Drop
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.
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