Volkswagen’ latest third-quarter results should boost market confidence, according to Adam Hull, an analyst at Berenberg. The OEM’s Q3 EBIT of €2.777bn (US$3.82bn) came in 2% ahead of Bloomberg estimates and 7% ahead of Berenberg’s forecast. Group revenues came in about 4% short of consensus and Berenberg’s forecast, and entailed a 9% decline at the Volkswagen brand and a 7.2% decline at Audi.
Berenberg’s Hull describes the Group’s EBIT margin of 8.2% as “impressive, given the weak point in model cycle, the weak EU car market and the fact that Q3 is normally the seasonal low.” Hull goes on to explain: “The headline reported Q3 EBIT margin was 5.9%, ie below the seasonal high point of 6.6% in Q2 2013, but above the 5.0% in Q1 2013. Adding back non-cash PPA and the reported EBIT of its Chinese JVs (and estimated revenue), the effective Q3 VW group EBIT margin was 8.2%.”
In comparison, Mercedes-Benz reported a Q3 EBIT margin of 7.3%. In addition, VW managed to best its upmarket compatriot despite a relatively weak model mix at the VW brand and Audi, costs from expanding its Leipzig plant and launch costs ahead of the new Porsche Macan, scheduled for next year. It has also been struggling against weak truck markets and few savings from the MQB platform, though greater savings are expected in the coming quarters.
Speaking at the publication of the latest results, VW’s Chairman of the Board of Management, Martin Winterkorn, commented that the “modular toolkit system, which is being continuously expanded, will have an increasingly positive effect on the Group’s cost structure.”
Looking ahead, Hull expects VW’s effective margin to reach 9.5% by fiscal year 2015, which would put it nearly on par with what Berenberg is expecting for BMW Group.
For the VW brand in particular, Q3 revenue came in below expectations, falling 9% year-on-year. However, Hull views the brand’s EBIT of €623m and margin of 2.6%, both ahead of expectations, as impressive. A higher proportion of Golf models and the introduction of the new Passat into the line-up should improve the situation in the future.
Porsche sales for the first nine months totalled 115,000 vehicles and generated an operating profit of €1.9bn. While its margin came in ahead of expectations at 17.6%, it fell short of the 19.2% reported in Q2 this year. Hull notes that this is “still a very high absolute level. Particularly considering the significant start-up costs for the first-time release of the Porsche Macan in spring 2014 and the fact that the face-lifted Panamera is only just being launched outside of Europe.”
Audi reported an operating profit of €3.7bn, down from €4.2bn last year, on the back of negative mix effects, higher upfront investments in new products and technologies, as well as the expansion of its global production facilities. “Q3 is the seasonal weak point of the year and Audi is currently at a weak point in its model cycle,” notes Hull. This past quarter it had to contend with substantial start-up costs on the Audi A3 sedan, which arrived in Europe earlier this month.
Looking ahead
Overall, the VW Group expects full year sales to top 2012 levels and an operating profit on par with last year’s. Earlier this year, Volkswagen lashed out in response to comments that it had reduced its primary 2015 financial targets. German language publication Manager Magazin had reported that Chief Financial Officer Hans Dieter Poetsch alerted company managers that financial targets for 2015 could be missed due to unexpectedly high costs for the MQB platform. The OEM denied any such comments were made. Hull believes that Poetsch was most likely simply calling for a continuation of best effort: “A CFO should never say ‘well done team, our margins are great, you can now sit back and relax’.”
Winterkorn believes the company’s future success will be driven by innovation, technology leadership and geographical diversity. However, he cautions that “cost and investment discipline is and will remain the cornerstone of our planning.”
Poetsch also emphasised the focus on costs: “We are focusing on disciplined cost and investment management, as well as on further improving all of our processes. Together with our outstanding products, we believe that this is the right path towards becoming even more competitive. This is particularly important given the fact that the economic environment is not expected to improve in the short term.”
Megan Lampinen
