FRANKFURT (Dow Jones)–Volkswagen has caused uncertainty among investors by again lowering its forecast for the full year. The Wolfsburg-based DAX group will not achieve its self-imposed return target this year, mainly due to losses from raw material hedging transactions. At best, the operating return will now be around 7.0 percent – VW had previously promised 7.5 to 8.5 percent. The lowering of the forecast was partly expected on the stock market, which is why sales of VW shares on Monday were limited: the security lost almost 3 percent at the start of the stock market. Analysts also see positive aspects in the car company’s announcement on Friday.
Due to developments on the raw materials markets, VW no longer expects to be able to compensate for the losses of 2.5 billion euros from hedging transactions accumulated in the first nine months by the end of the year. Like many corporations, VW purchases raw materials via futures contracts. Since the market prices at the start of the year were below the prices agreed in the contracts, the bill was charged in the billions.
High taxes and flooding burden
In addition, VW had to pay back taxes totaling 1.5 billion euros in the past quarter. The operational business was impacted by floods in Slovenia and higher product costs, especially for the core VW brand. This can be seen in the preliminary figures for the third quarter: Sales rose more significantly than expected by 12 percent to around 78.8 billion euros. Analysts’ consensus was that only 7.7 percent was possible. In terms of profits, however, more was expected: VW increased its operating result by 15 percent, while the market saw an increase of a third. The operating return for the quarter was around 6.2 percent, while analysts had expected 7.5 percent.
For the year as a whole, VW announced a profit of around 22.5 billion euros, roughly the same level as the previous year. As expected, sales are expected to increase by 10 to 15 percent and sales between 9 and 9.5 million vehicles.
Analysts: Sign of confidence
The confirmed forecast for sales and revenue should be seen as a sign of confidence, say analysts at Deutsche Bank. The lower profit forecast was meanwhile expected by many market observers. The margin of around 8 percent assumed for the fourth quarter is also “pretty solid,” according to the analysts. Overall, the business downturn is not as significant as feared.
Analysts at Jefferies, however, see the news as a warning signal about the urgency of restructuring the core VW brand. It is unclear how the group’s volume business will assert itself in the market. Volkswagen has announced a savings program for the core brand that is intended to increase returns to 6.5 percent by 2026 from just 3.6 percent last year. Among other things, the model range should be streamlined and equipment variants reduced. However, VW has not yet given any specific details.
There could be news about this on Thursday when VW presents the detailed quarterly figures for the third quarter. Then it will also become clear how the group’s individual brands performed in the three months.
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DJG/kla/jhe
(END) Dow Jones Newswires
October 23, 2023 05:15 ET (09:15 GMT)
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