Please ensure Javascript is enabled for purposes of website accessibility

Volkswagen Group: Earnings Fall as China Sales Slip

By John Rosevear - Jul 29, 2015 at 3:20PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Favorable exchange rates helped boost revenue, but a drop in China sales and headwinds in other key markets trimmed after-tax results.

As usual, luxury vehicles like the Porsche Cayenne made outsized contributions to VW's global bottom line in the first half of 2015. Source: Volkswagen Group.

Volkswagen Group (VWAGY -0.25%) reported its second-quarter earnings on July 29. Here's what you need to know.

The quick summary
VW's revenue rose 9.9%, to 56 billion euros ($61.72 billion). But after-tax profits fell 16%, to 2.73 billion euros ($3.01 billion), as restructuring costs in VW's MAN truck division and sales headwinds weighed.  

Analysts had expected a net profit of 3 billion euros, according to the Wall Street Journal. Volkswagen also cut its full-year sales forecast on weakness in several key markets. 

The stock fell about 2% on the news.

Revenue grew, but VW's sales are slipping
Volkswagen's revenue increase was driven by exchange-rate effects that favored the euro, as well as improvements in "mix," meaning that the company sold a higher percentage of more expensive (and more profitable) vehicles. 

That's key at VW, where luxury vehicles make outsized contributions to the company's bottom line. The premium Audi and Porsche brands contributed just 18.7% of the Group's passenger-car sales in the first half -- but about two-thirds of its operating profits. But while the Volkswagen Group did manage to beat Toyota in global first-half sales, VW's sales growth hasn't been as strong as the company would like.

The good news for Volkswagen is that conditions in Europe are finally improving after years of challenging economic conditions that kept consumers away from new-car dealers. But while the Volkswagen Group's brands have gained ground against competitors in Eastern Europe, the company's gains have trailed the overall industry's rise in the more lucrative Western European markets.

VW has also managed to gain some ground in North America after years of struggling, with sales up 6%. But VW's U.S. sales increased by just 2.4% in the first half of 2015, trailing the overall market's 4.4% gain.

The news was less good in the world's largest car market. The Group's deliveries in China, where VW is the market leader, dropped for the first time in a decade in the first half of 2015. VW's equity income from its Chinese joint ventures dropped to about 1.1 billion euros in the second quarter from roughly 1.4 billion euros in the year-ago period. The Group's overall operating profit margin of 6.6% was roughly in line with rivals'.

A subdued outlook for the second half of 2015
VW cut its full-year sales guidance, saying that 2015 deliveries will be about the same as 2014's. Its earlier forecast called for a moderate increase. In remarks reported by Reuters, VW sales chief Christian Klingler said that the Group's full-year sales in China were unlikely to grow year over year, and could even decline a bit from last year's 3.68 million total deliveries.

CEO Martin Winterkorn said that he expects full-year revenue to rise "up to four percent" over 2014 totals, and full-year operating margin to come in between 5.5% and 6.5%. 

But he hedged that prediction with concerns about economic conditions in Latin America and eastern Europe. Coupled with the expected slowdown in China, the outlook for VW looks decidedly subdued over the next few quarters.

John Rosevear has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Volkswagen Aktiengesellschaft Stock Quote
Volkswagen Aktiengesellschaft
VWAGY
$19.89 (-0.25%) $0.05

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
394%
 
S&P 500 Returns
127%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 08/18/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.