Volkswagen AG stuck to its 2004 earnings guidance on Thursday after posting a smaller than expected decline in third quarter operating profit, helped by cost savings.
Europe's largest carmaker said pricing pressure and currency effects contributed to a 23 percent fall in quarterly operating profit to 487 million euros ($619.6 million) before one-offs, beating the 468 million euro average forecast in a Reuters poll.
The company, which also makes the luxury Audi cars, stuck to its guidance for 2004 operating profit of 1.9 billion euros, excluding 400 million in restructuring charges, but said market conditions remained tough.
The fall in earnings could reinforce management's demand for a two-year pay freeze for the 103,000 workers at VW's six western German plants when the company meets with union negotiators on Thursday for a fifth round of crucial wage talks.
VW said its ForMotion efficiency programme was on track to deliver well over 1 billion euros in savings, after pitching in more than 850 million in the first three quarters.
Net cash flow at VW's automotive division improved to a positive 1.08 billion euros by the end of the first nine months.
Shares in Volkswagen jumped on the news before easing back to trade 1.3 percent firmer at 34.80 by 1130 GMT, just ahead of a one percent rise in the DJ Stoxx European autos index.
Analysts said the report would also relieve bondholders.
"Positive for debtholders was the operating cash flow in the automotive division improved by 21.3 percent," said HVB credit analyst Sven Kreitmair in a note to clients.
"This shows the success of the ForMotion programme in the automotive cash flow statement and automotive balance sheet and the commitment of the company to keep it's A- rating," he added.
Losses in North America continued to mount but not as much as feared - to 614 million euros in the nine months from 503 million in the first half. VW had warned of a high risk that second half losses could exceed those seen in the first six months.
Lower deliveries and currency headwinds meant the contribution of its Chinese joint ventures to nine-month profits fell to 268 million euros from 466 million in the year earlier.
The VW brand group, which includes Skoda, Bentley and Bugatti cars, swung to a nine-month loss of 47 million from a profit of 388 million in the previous year due in part to sales incentives.
Outside the VW brand group, Fiat also makes Seat and Lamborghini cars. Its struggling commercial vehicles division widened its nine-month loss by only 7 million to 159 million euros from a year earlier.
Revenues rose 0.8 percent to over 21.4 billion euros, while deliveries to customers slid 0.6 percent to 1.23 million vehicles due entirely to a drop in its domestic German market. Net profit slumped 65 percent to 76 million euros.
While Volkswagen is threatening its German workers with job losses should they fail to agree on a labour cost-cutting package, mass-market rivals in France are zooming ahead thanks in part to a lack of exposure to the US market.
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