Europe troubles cause Hyundai to cut 2012 global sales forecast
Automaker bucks trend in Q2 due to high demand for Czech-made SUV
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SEOUL (Bloomberg) -- Hyundai Motor Co. cut its global industrywide automobile demand forecast for this year, citing a worse-than-expected economic situation in Europe and China.
The automaker expects 77.1 million units to be sold globally, down by about 500,000 units from what it forecast in April, Chief Financial Officer Lee Won Hee said today.
Industrywide demand in Europe will fall to about 6.43 million vehicles in the second half, after about 7.65 million units were sold in the first six months this year, amid the worsening economic situation, Lee said.
Hyundai's revised forecast comes at a time when industrywide deliveries in Europe dropped 3.2 percent, according to data compiled by Bloomberg.
Sales in China may also be curbed by the registration limits imposed by major cities in the world's largest automobile market.
"The economic situation in Europe will worsen in the second half of this year," Hyundai's Lee said in a conference call in Seoul today. "Still, Hyundai will be able to meet the global sales target we set earlier this year."
Profit up
Despite the gloomy outlook, Hyundai reported second-quarter profit that beat analysts' estimates as sales of the ix35 SUV helped the company buck an industrywide new-car sales decline in Europe.
Net income climbed 10 percent to 2.55 trillion won ($2.2 billion) from 2.31 trillion won a year earlier, the company said.
Profit beat the 2.43 trillion won average of 26 analyst estimates compiled by Bloomberg. Revenue increased 9.2 percent to 21.94 trillion won.
Sales climbed 18 percent in Europe, led by the sales of ix35 (known as the Tucson outside of Europe), at a time when industrywide deliveries in the region dropped 3.2 percent, according to data compiled by Bloomberg.
Earnings growth may slow in the second half as Hyundai faces potential stoppages from strikes in South Korea and a slowing Chinese economy.
"I expect Hyundai to continue its performance in Europe and gain more market share moving forward," said Kim Byung Kwan, an analyst at Mirae Asset Securities Co. in Seoul before the earnings announcement. "A concern may be the ongoing strikes in Korea which could be damaging if stoppages are prolonged."
Operating profit, or sales minus the cost of goods sold and administrative expenses, rose 18 percent to 2.5 trillion won. That exceeded the 2.48 trillion won average analyst estimate compiled by Bloomberg.
The automaker's earnings announcement comes amid strikes held by its union. Hyundai's union, which has a larger membership than at any other South Korean company, has staged two partial strikes during this month to demand higher wages and reduced working hours.
Labor strikes
The company estimates a production loss of 8,630 units or 175 billion won during the two-day partial strikes that took place on July 13 and 20, according to an e-mailed response to a Bloomberg query. For the remainder of the year, Hyundai's priority should be to resolve this year's wage accord with its union before the effects of the ongoing strikes hurt production beyond a manageable degree, said Lee Sang Hyun, an analyst at NH Investment & Securities Co.
"The aftermath of the strikes will cause this quarter's earnings to fall below the previous quarter's results," Lee said. "The company will have to ramp up production to make up for the loss in the fourth quarter."
In South Korea, its biggest production base, Hyundai's sales fell by 2.4 percent last quarter as the ripples from Europe's economic crisis and rising household debt undermined consumption, according to an e-mailed statement from the Korean Automobile Manufacturers Association.
The Bank of Korea today reported that second-quarter gross domestic product expanded at the slowest pace in almost three years.
U.S. sales
In the U.S., Hyundai sales rose 7.2 percent, lagging behind the industry's 16 percent gain, as deliveries of its Elantra small sedan fell 14 percent and Japanese companies led by Toyota Motor Corp. regained market share after restoring production disrupted by last year's tsunami and floods in Thailand.
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Hyundai gained market share in Europe as it benefited from demand for its ix35 (shown) and i20 hatchback. Photo credit: Reuters |
In the first six months, Hyundai's sales in U.S. rose 11 percent, compared with Toyota's 29 percent and Honda Motor Co.'s 15 percent, according to data compiled by Bloomberg. Still, Hyundai's growth outpaced General Motors Co.'s 4.3 percent and Ford Motor Co.'s 6.8 percent.
Increased deliveries of full-size sedans in the U.S. market probably boosted Hyundai's earnings last quarter because those models typically generate higher profitability than smaller vehicles, said Lee Sang Hyun, an analyst at NH Investment & Securities Co.
U.S. sales of Hyundai's Azera and Genesis, which compete against BMW's 5 series and Toyota's luxury brand Lexus' GS models, rose fivefold and 38 percent last quarter, respectively.
Europe sales
In Europe, which is on pace for a fifth consecutive year of vehicle-sales declines, Hyundai gained market share as it benefited from demand for its ix35 and i20 hatchback. Sales from its Russian plant surged 72 percent and deliveries at its factory in the Czech Republic climbed 26 percent.
Hyundai is also investing about $607 million expanding its plant in Turkey to double annual production capacity there by the end of 2013.
Hyundai sales in China decelerated as the world's second-largest economy slowed and concerns are mounting that demand may slump further. Guangzhou, the capital of Guangdong province bordering Hong Kong, began imposing a quota this month on new vehicle registrations to control vehicle emissions and ease traffic congestion.
The restrictions in Guangzhou -- which followed Beijing, Shanghai and Guiyang in implementing curbs on vehicles -- led Morgan Stanley to say in a July 2 report that 11 other cities, accounting for 15 percent of total industry sales in 2010, are candidates to also implement limits on cars.
"Inventory pressure is definitely higher than before," Dong Yang, secretary general of CAAM, said. "Guangzhou's measures of limiting car ownership runs in contradiction to the central government's call to maintain economic growth."
In India, sales from Hyundai's plants increased 8.1 percent last quarter, helped by the Accent small sedan and i10 subcompact, according to Hyundai's Web site.
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