VW Shares Fall on 56% Drop in After-Tax Profit
July 28 2016 - 5:40AM
Dow Jones News
BERLIN—Volkswagen AG shares fell sharply in early trade on
Thursday after the car maker reported a 56% drop in after-tax
profit in the three months to the end of June, hit by rising costs
as the company struggles to move past its crippling
emissions-cheating scandal.
The Wolfsburg, Germany-based car maker, which outpaced rivals
Toyota Motor Corp. and General Motors Co. in sales in the first six
months of the year, said after-tax profit fell to €1.2 billion
($1.33 billion) in the second quarter from €2.7 billion a year
ago.
The company's shares fell more than 3% to about €124 in early
trading on the Frankfurt Stock Exchange.
Volkswagen said revenue in the three-month period was €56.9
billion, up 1.7% from €56 billion the year before. Operating
profit, as reported in a pre-release on July 20, surged nearly 20%
to €4.4 billion. That was halved, however, by charges of €2.5
billion, largely related to the diesel scandal. Volkswagen's
Thursday release provided details not included in the July 20
advance release of headline profit figures that beat analysts'
forecasts.
"This shows that the Volkswagen Group has high earnings power.
But it will require continued hard work to absorb the significant
impact from the diesel issue," said Chief Finance Officer Frank
Witter in a statement.
U.S. environmental authorities disclosed in September that
Volkswagen had been cheating on emissions tests for years by
rigging diesel engines to produce lower emissions when being tested
than during normal driving, forcing a sweeping shake-up of
management and plunging the company into turmoil.
On Wednesday, a U.S. federal court gave preliminary approval to
Volkswagen's $15 billion settlement with U.S. customers,
environmental authorities and state attorneys general, the largest
class-action settlement ever reached with an auto maker. Final
approval is expected in October.
Volkswagen had set aside €16.2, nearly $18 billion, in its 2015
accounts to pay for compensating cheated customers, legal fees and
other costs related to the scandal.
The company said in April that it didn't expect further
diesel-related costs. The second-quarter charges, though
significantly lower than those taken last year, suggest that the
company has underestimated the full cost of its diesel scandal.
Czech car maker Skoda, Spain's SEAT, Porsche and the company's
truck division drove Volkswagen's automotive operating profit
higher, compensating for declining earnings at Audi, the Volkswagen
passenger car brand, and Bentley.
Lower earnings from its joint ventures in China, the car maker's
biggest market by sales, also hit Volkswagen earnings. Profit from
China is booked as a financial gain, so it doesn't appear in
operating earnings. Volkswagen said China's contribution to
earnings fell to €2.4 billion from €2.7 billion in the first half
of the year.
Despite the emissions-cheating crisis, Volkswagen sold more
vehicles in the first half of the year and outpaced rivals Toyota
and GM to remain the biggest auto maker in the world by sales.
Volkswagen sales rose 1.5% in the six months to the end of June
to 5.1 million vehicles, including its namesake Volkswagen brand,
Audi luxury cars, Porsche sports cars, Skoda, SEAT, Bentley and
Lamborghini.
Toyota, which held the industry crown last year, sold 4.99
million vehicles in the first half of 2016, down 0.6%, and GM sold
4.76 million vehicles world-wide.
Write to William Boston at william.boston@wsj.com
(END) Dow Jones Newswires
July 28, 2016 05:25 ET (09:25 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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