Kia Motors has reported revenue and earnings gains in the quarter ended 30 September 2012 although the operating margin declined year-on-year and all margins were lower versus those seen in the preceding two quarters of the year. The Q3 net earnings result of Won 829bn (US$753m) was 24.4% lower than the Q2 2012 result and significantly below the Won 975bn consensus estimate, as compiled by Bloomberg.
Domestic production and sales in the latest quarter were undermined by sporadic industrial action by the South Korea workforce and this affected both Q3 revenue and earnings. Q3 2012 revenue totalled Won 11,625bn, versus Won 9,990bn in Q3 2011, still a gain of 16.4%, but 7.4% below the Q2 2012 level of Won 12,551bn and also short of the Q1 2012 total of Won 11,790bn. The nine weeks of industrial action cost Kia an estimated Won 1,030bn in lost output and by volume, it was the worst strike as the disputes prevented the company from producing 62,890 vehicles.
The company’s cost of sales as a percentage of revenue increased to 78.2% in the latest quarter, against 75.5% in Q3 2011 and 75.1% in Q2 2012, inevitably undermining gross profit performance. Q3 2012 gross profit was Won 2,539bn (margin of 21.8%), versus Won 2,450bn (24.5%) in the same quarter of the prior year, a rise of 3.6%, but was down 18.6% on the Q2 result of Won 3,120bn (24.9%).
Operating profit in the latest quarter was Won 861bn (7.4%), 4.0% up year-on-year on the Q3 2011 result of Won 828bn (8.3%), but 29.4% down from the preceding quarter (Won 1,219bn; 9.7%). Q3 2012 pre-tax profit was Won 1,239bn, 41.7% ahead of the Q3 2011 result of Won 874bn, while the net earnings result of Won 829bn was ahead 28.0% year-on-year.
The Q3 result took Kia’s year-to-date (January-September) revenue to Won 35,966bn, 11.6% up on the Won 32,228bn reported in the same period of 2011. This increase was driven by an 11.3% gain in retail sales – to 2,034,000, from 1,827,000 – although domestic sales fell 4.7% to 349,000 from 367,000. The strongest year-on-year unit gain was seen in Europe (EU+EFTA), where sales rose from 211,000 to 253,000. Sales in the US rose 18.4% to 435,000 from 367,000 and in China by 10.9%, to 333,000 from 301,000.
Kia’s gross profit in the first three quarters of 2012 (9M 2012) was Won 8,381bn (23.3% margin), 14.5% up from the Won 7,320bn (22.7%) reported in 9M 2011, the cost of sales falling to 76.7% of revenue versus 77.3%.
Operating profit in 9M 2012 was Won 3,201bn (8.9%), versus Won 2,699bn (8.4%) in the previous year, a rise of 18.6%, while pre-tax profit increased 20.9% year-on-year to Won 4,313bn (Won 3,568bn). The higher rise in pre-tax earnings was driven by higher positive financial items (Won 111bn, versus negative Won 175bn, a Won 244bn improvement) which was only offset to a minor degree by lower income from associates (Won 1,001bn, versus Won 1,043bn).
Net income in the first nine months of 2012 was Won 3,127bn, 14.6% above the Won 2,719bn generated in the opening three quarters of the previous year.
The OEM has lowered the 2013 production target to 2.8 million units, versus an earlier goal of 3 million, but said that output will reach 3 million after the new plant in China starts production in 2014. The reduced production target for next year and the impact of the strengthening Won have led to estimate downgrades by analysts and the company’s share price suffered a significant fall after the Q3 results were announced. Bloomberg quoted Kia’s Chief Financial Officer, Park Han Woo, as saying: “The strengthening Won may hurt the company’s profitability moving forward.”
According to Joo Woo Jeong, head of the company’s financial management group, Kia still expects to sell 730,000 vehicles in the current quarter, which would allow it to beat its full-year target of 2.71 million units.
