Volkswagen and Fiat – like PSA earlier – both posted better than expected results on Wednesday due to cost cuts, allowing them to keep their financial targets and boosting their share prices.
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Volkswagen said second-quarter operating profit rose 22% to EUR2.12bn (US$3.38bn), easily surpassing market expectations, according to Reuters.
Its poll of 20 analysts had forecast operating profit would rise on average to just EUR1.81bn in the quarter, putting VW on track for an estimated EUR6.61bn for the full year, up 7.5%. VW stuck to its earlier guidance with no specific targets, Reuters said.
Its quarterly operating margin rose to 7.2% – the best in recent memory – thanks to streamlining its cost base and boosting productivity, the report added.
Credit Suisse’s Arndt Ellinghorst told Reuters the EUR300m gap over expectations was driven by VW’s so-called ‘other operating profit’ line that accounts for factors like currency hedging gains or releases from warranty provision.
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By GlobalData“The operating environment has become tougher and is demanding considerable efforts from the automotive industry,” VW chief executive Martin Winterkorn was quoted as saying. “This does not make it easy for us. However, we are well positioned and have the right strategy to master the tasks ahead of us.”
Reuters said Fiat confirmed its targets for this year and the next after posting a 19.6% rise in quarterly profit to EUR1.13bn, beating average market expectations.
“Fiat Group closes (the) second quarter 2008 with the highest sales and trading profit in its history,” it said in a statement.
“The company reiterated all targets,” Adam Jonas at Morgan Stanley wrote in a note cited by Reuters. “But we believe the writing is on the wall and the second half will be tough.”
Reuters said shares in Peugeot Citroen rose 8%, Volkswagen around 5% and Fiat rose 6.8%, helping to lift the Dow Jones Stoxx auto index 3.7%.
Renault results are due on Thursday.
The news agency noted that several analysts have slashed earnings estimates for European car makers with Morgan Stanley this week cutting its 2008 estimates by 10% and those for 2009 and 2010 by 25-30% due to the weak market and high raw materials.
Lehman Brothers, Credit Suisse and Citigroup also see trouble ahead for car makers, just as several profitability programmes were starting to show some benefits, the report added.
