By William Boston 

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (July 26, 2019).

BERLIN -- Volkswagen AG bucked the downward trend in the global auto industry, reporting robust second-quarter earnings on strong sales expansion of its higher priced sport-utility vehicles.

The performance of Volkswagen's passenger cars and sports-car maker Porsche helped offset weaker performance at Audi, which is suffering from the continuing fallout from the diesel-emissions scandal and falling global demand for German luxury vehicles amid trade tensions and economic uncertainty.

Volkswagen said Thursday that net profit for the entire group rose to EUR3.9 billion ($4.3 billion) in the three months to the end of June from EUR3.2 billion a year ago. Revenue rose 7% to EUR65.2 billion. The strong earnings were underpinned by a 20% increase in net earnings in its core automotive division to EUR3.5 billion.

The auto maker said earnings for the first half of the year rose about 7% to EUR6.9 billion but were tempered by Audi's weaker performance and a decline in earnings from its China businesses, where sales fell 3.9% to 1.9 million vehicles in the first half.

Volkswagen shares jumped on the report, climbing as high as EUR162.04, just off their 52-week high, before giving up the gains as investors sold the stock to lock in profits.

The strong quarter and first-half earnings at Volkswagen's collection of brands that also include Skoda, Seat, Bentley, Lamborghini and Bugatti stood in contrast to the performance of some of Volkswagen's main rivals.

Ford Motor Co. on Thursday disappointed investors with a weak set of quarterly earnings. Nissan Motor Co., Japan's second-largest auto maker by sales, reported a 94.5% drop in profit in the three months to June and unveiled plans to cut 12,500 jobs and slash production 10% by 2023.

Daimler AG reported earlier this month its first quarterly loss in a decade, and BMW AG, in another sign of trouble among German luxury car makers, is expected to publish weak quarterly earnings next week.

Volkswagen and PSA Group, which makes the Peugeot, Citroën and Opel brands, stand out in the crowded field of big high-volume car makers. PSA, on the back of five years of restructuring, beat analysts profit forecasts this week and reported that its automotive business had achieved a return on sales of 8.7%, better profitability than BMW and Daimler.

Volkswagen's results show that Chief Executive Herbert Diess' efforts to slash costs across the board and simplify the business are beginning to pay dividends. He has been putting pressure on suppliers to lower prices, has eliminated feature options for customers to rein in model costs, and is scrapping low-profit models such as the iconic Beetle, which ended production in Mexico this year.

But the biggest single driver behind Volkswagen's forecast-beating profit growth was a strong shift out of less profitable sedans into SUVs that carry a higher price tag and produce higher profits across all Volkswagen's car brands.

Chief Finance Officer Frank Witter told reporters on a conference call that SUVs made up about 25% of the cars Volkswagen sold last year, and the share of SUVs had risen to 35% by the end of June and would likely rise further to 40% by the end of the year.

"That is certainly a driver," Mr. Witter said.

Volkswagen didn't entirely escape the pressures from the deteriorating global economy, however. New car deliveries in the first six months of the year fell 3.1% to 5.2 million vehicles world-wide, hit by declining sales in Europe and China.

In a move to mitigate the risk of falling demand, Europe's biggest auto maker by sales has begun curtailing production at its factories. Output at its main plants in Germany fell 15% in the first half from a year ago and production was down 6.3% world-wide.

"This is something we can do," Mr. Witter said. "It's better to produce fewer cars than to build too many."

Write to William Boston at william.boston@wsj.com

 

(END) Dow Jones Newswires

July 26, 2019 02:47 ET (06:47 GMT)

Copyright (c) 2019 Dow Jones & Company, Inc.
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