The German automaker, Volkswagen (VLKAY, Financial), posted its first-quarter results on April 29, and left investors and analysts excited since both the top and bottom line surpassed all expectations. Despite having reeled from the leadership change recently with the sudden resignation of Volkswagen’s chairman, Ferdinand Piech, the company seems poised to grow and has been extensively cutting costs to remain profitable in almost every quarter. In fact, the European demand for the Volkswagen brand seems to have stealthily recovered driving its global sales up 1.8% to 2.6 million vehicles. Let’s quickly find out how the largest automaker in Europe fared in the first quarter of fiscal 2015.
The shining numbers says it all
Net profit for the auto maker rose 20.6% to 2.9 billion euros ($3.19 billion) while revenue improved 10.3% year over year to 52.7 billion euros ($57.9 billion). During the discussion at the earnings call, CEO Martin Winterkorn stated – “Nevertheless, our key figures for the first quarter show that the Volkswagen Group remains on course, despite the headwinds…” The major headwinds were felt from Russia and Latin America where the automaker’s vehicle sales fell 34% and 17%, respectively, in the quarter. However, China became the bright spot for the automotive giant which reported a 1.9% increase in passenger car deliveries in the Nation. Notably, the operating income from the Volkswagen’s Chinese joint ventures came to about 1.6 billion euros, which represented a 33% jump from 1.2 billion euros reported a year earlier in the similar quarter.
Overall, there was a strong demand felt for the luxury brand, Audi, and Porsche, which drove the unit sales further in the quarter. Audi’s unit sales were up 6%, while Porsche’s unit sales improved 31% in the quarter.
Operating income also improved 17% year-over-year to 3.3 billion euros for the first three months that ended on March 31. Operating return on sales jumped almost 6%, a signal that Winterkorn’s cost-cutting course is gradually paying off. In fact, the company shared that in the quarter it took cost-saving measures that saved the company more than 100 million euros in the first quarter alone.
In North America, there is a demand curve being felt for the German automaker’s vehicles which have driven the global demand for the firm’s passenger vehicles up by 3.7%, when compared to the year-ago period.
Future guidance remains solid, though cautious
The secondlargest automaker next to Toyota, in terms of global auto sales, delivered guidance for the remaining part of the year which reflected the management optimism going forward. After reeling from two weeks of boardroom trouble that led the chairman to quit after having differences with the CEO of the company, the sharp rise in earnings was something not very much anticipated by analysts. But Volkswagen met, if not surpassed,Ă‚ expectations.Ă‚
CFO Hans Dieter Potsch stated that a combination of cost-cutting initiatives and a new manufacturing platform was “very much on track” to help Volkswagen brand achieve an operating margin of 6% by 2018. The Wolfsburg-based automaker stuck to its full-year guidance and said that it expects the group revenue to be up 4% and also presumes that operating margin would reach a record of 5.5%-6.5%.
Such projections were provided along with a caution message on passenger car sales for the entire fiscal year that said, “We expect trends in passenger car markets in the individual regions to remain mixed…” as per Hans Dieter Potsch.
Final word
Amid the existing power struggle, Volkswagen brand benefited from the weak euro and the exemplary growth at the Audi and Porsche luxury car divisions. The stock has climbed 31% to date this year, valuing the company at 114 billion euros. As per an analyst at Commerzbank, “The development of the VW brand will be in focus in coming months…” Since the overall numbers look robust, let’s keep an eye on how the 5 billion euros efficiency program kicked off by the CEO last year lifts its operating profit margin of the namesake brand in the upcoming quarters.
