Volkswagen reports $6.9bn profit

Author: 
DAVID McHUGH | AP
Publication Date: 
Thu, 2011-07-28 23:25

Net
profit reached 4.78 billion euros ($6.86 billion), far above the 1.35
billion euros recorded in the same quarter a year ago and well above
average analyst expectations.Revenues rose 21.5 percent to 40.3
billion euros. Unit sales were up strongly in emerging markets such as
Russia, Turkey, South Africa, China and Argentina. US sales also rose,
though not by as much.VW shares however slumped 5.9 percent to 126
euros in early afternoon trading in a broadly lower market as investors
worried that the company would struggle to keep up its high
profitability after it warned about challenges ahead.The carmaker
fell just short of analysts' estimates on operating profit, a key
measure of earnings before interest and taxes — it came in at 3.17
billion euros, whereas analysts on average had predicted 3.21 billion
euros.Analysts often consider operating earnings a clearer picture of how a company's basic business is developing.The
company warned that the rest of the year could prove challenging.
"Volatile interest-rate and exchange rate developments as well as raw
materials prices could weaken the positive volume effects," it said in a
statement.Chief Executive Martin Winterkorn said that "the coming
months will challenge us and demand effort in order to maintain this
high level."Winterkorn's cautious outlook echoed statements from
other large industrial firms such as Siemens AG and BASF SE, which also
reported profits but foresaw less solid growth in months ahead.Analyst
Max Warburton at Sanford C. Bernstein said that the results show
"profitability at an enviably high level" but added that profit margins
had not noticeably improved over the admittedly strong results from the
first quarter.Profit margins were 7.9 percent compared with 7.8
percent in the quarter before. Luxury brand Audi remained the company's
leader in that category, with a 12.9 percent margin.Volkswagen has
more mass-market brands than competitors Daimler AG and BMW AG, who
focus on luxury models that have lower volumes but earn more per
vehicle, and its plants are heavily based in higher-wage Europe.As a
result Warburton said the company was "a fundamentally lower return
business" than the other two German carmakers and rated the shares
"market perform," meaning returns are generally in line with market
averages.

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