Volkswagen AG, the world's fourth biggest carmaker, beat forecasts with a near 50 percent rise in adjusted second-quarter operating profit helped by a recovery in its core VW brand, driving its shares sharply higher.
Underscoring that its long-troubled core VW brand is slowly turning the corner, the group said on Thursday that the VW Brand Group quarterly profit finally overtook those of its Audi Brand Group premium division, in the past the biggest contributor to earnings by far.
Excluding 906 million euros in one-off restructuring charges, group operating profit rose by almost half to 1.30 billion euros ($1.64 billion), exceeding the median estimate of 1.03 billion from 20 analysts Reuters polled.
VW's shares jumped 9.5 percent to 59.83 euros by 1311 GMT, easily outpacing the broader market and marking a stark contrast to French rival PSA Peugeot Citroen, whose stock tumbled over 10 percent on Wednesday after it missed first-half profit targets and slashed its forecast for the second half.
"At the start of the German earnings season, VW has given a positive signal for the market," a Frankfurt-based trader said. Driven by a one-off disposal gain of about 800 million from the sales of its Europcar rental agency, Volkswagen's net profit soared to 859 million euros from 333 million a year ago.
The Wolfsburg-based group reaffirmed its forecast for an unspecified gain in operating profit before special items and also stuck to its mid-term pretax profit target of 5.1 billion euros in 2008.
To reach that goal, Volkswagen has been taking an axe to its bloated cost base. Perhaps its toughest task has been the politically unpopular decision to slash thousands of workers employed in Germany, where its six main plants rack up losses in the high hundreds of millions of euros.
During a conference call with analysts and reporters, Chief Executive Bernd Pischetsrieder fed a hungry market details about the latest progress in job cuts, saying about 2,500 workers had signed voluntary termination packages.
A further 6,000 had signed early retirement contracts but still work at the company with another 3,700 already in a so-called passive phase of early retirement in which they no longer work at Volkswagen, he continued. Despite the hefty 1.3 billion-euro in charges to pay for the cuts, VW would not rule out further such costs in the second half.
The company has said up to 20,000 jobs were at risk at the VW brand as a result of the ongoing restructuring programme. Management soothed concerns that high raw material prices played havoc with its earnings as they have with many of its rivals and parts suppliers, quantifying the first-half hit to operating profit at less than 100 million euros.
France's PSA doubled its expected 2006 impact from high commodity prices to more than 450 million euros, leading to the lowered guidance and subsequent plunge in its stock.
Analysts had warned that VW's underlying earnings strength would be clouded by one-off effects from restructuring and the Europcar sale, as well as possibly more conservative accounting methods ahead of crucial negotiations with German trade unions later this summer over longer work weeks without compensation. Morgan Stanley wrote in a note that VW was making strides in ensuring the credibility of its 2008 operating targets, adding that VW's operating margin had "smashed" its own estimate.
"VW stock is already discounting much good news, however, and is significantly above its historical median valuation," Sanford Bernstein analyst Stephen Cheetham said in a research note, citing a share price trading 12 times earnings versus the median 10.5 multiple over the past five years.