Volkswagen earnings growth slowed by tech costs and euro crisis

BERLIN (Reuters) - Germany's Volkswagen AG suffered a slowdown in underlying profit growth in the second quarter, as costs of a technology overhaul and Europe's deepening debt crisis weighed on the car maker's earnings.

Operating profit grew 3.4 percent to 3.28 billion euros (2.56 billion pounds), less than the 10 percent achieved in the first quarter but beating an average analyst forecast of 3.20 billion, as earnings increased at luxury marque Audi and VW's namesake brand - the group's two biggest divisions.

Shares in VW, maker of models ranging from the Up city car to the Bentley Continental ultra-luxury sedan, were down 2 percent at 130.75 euros by 1021, while the European sector as a whole <.sxap> was down 1.2 percent.

"VW's broad global presence and its cost-saving production patterns are the best recipe during a crisis," said Frank Schwope, an analyst at Hanover-based NordLB. "The results are strong but sales gains may slow in the second half, even at VW."

Europe's largest car maker increased first-half deliveries across its multi-brand group by 8.9 percent to 4.45 million autos. The Wolfsburg-based company has a goal of boosting sales to 10 million vehicles by 2018 and to surpass Toyota Motor Corp and General Motors Co to become the world's biggest car maker.

"Our strong position in international markets will enable us to outperform the market as a whole, despite the challenging environment," said VW Chief Executive Officer Martin Winterkorn in a statement.

Winterkorn's success in leading VW meant he enjoyed a near doubling of his pay last year to 17.5 million euros including bonuses, making him the top-earning chief of any of Germany's top 30 companies.

GROWING SALES

Benefiting from expanding operations in China, the United States and eastern Europe, VW's second-quarter group revenue surged 19.2 percent to 48.05 billion euros, reflecting growing sales of models such as the VW Tiguan and Audi Q3 compact SUVs and Audi's A6 sedan.

The manufacturer reaffirmed its view that deliveries and revenue will increase this year, while repeating a goal to match last year's record operating profit of 11.3 billion euros.

VW's results suggest the group is weathering the crisis while mass market rivals including Ford Motor Co and PSA Peugeot Citroen are floundering.

Ford on Wednesday almost doubled the loss it expects to incur in austerity-strapped European markets this year to more than $1 billion, a situation that will cause overall operating earnings to fall rather than hold steady in 2012.

Battling with overcapacity and sagging demand, Peugeot posted a 662 million euro first-half auto-division loss as it plans to weed out 8,000 French jobs and close a factory near Paris. Europe's No. 2 car maker had already announced 6,000 European redundancies last year.

Conversely VW's Spanish division Seat managed to shrink its quarterly operating loss by more than half to 13 million euros while boosting deliveries 20 percent to 119,000 vehicles.

Yet VW is also bracing for a tougher second half as sagging customer demand and growing discounts hurt manufacturers. VW's six-month group deliveries in western Europe excluding Germany declined 5.7 percent.

VW is engaged in pricing actions to promote the expiring Golf hatchback ahead of an overhauled version of its best-selling model due to hit showrooms in the final quarter.

The company is faced with upfront costs for a new architecture to assemble small and medium-sized vehicles that may absorb about 15 billion euros of costs through 2016, almost a quarter of total planned group spending of 62.4 billion on plants, products and equipment.

"The new modular building kit places a considerable weight on earnings in the short run but will prove a boon over time," NordLB's Schwope said.

The new technology will enhance VW's use of component-sharing and help reduce production costs 20 percent and assembly times 30 percent, VW has said.

(Editing by David Holmes)

Source: http://news.yahoo.com/volkswagen-earnings-growth-slowed-tech-costs-euro-crisis-110144992--finance.html

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