FRANKFURT -- Volkswagen Group expects to post a 6 percent gain in underlying earnings this year, setting a new record, yet analysts believe the automaker is being overly cautious and can do even better.
During a conference call on third-quarter results on Thursday, finance chief Hans Dieter Poetsch reaffirmed he expects the group’s second-half operating profit should match that of the first half, bringing the annual total to about 12.4 billion euros and surpassing last year’s high of 11.7 billion.
After the surprise 16 percent improvement in third-quarter operating profit that VW reported, in a market that had expected only a 1 percent rise, analysts see Poetsch’s full-year forecast as decidedly unambitious.
“Ever since some companies such as Daimler were punished for being too optimistic with their guidance, VW has become rather conservative,” said NordLB auto analyst Frank Schwope, citing uncertainties related to conflicts in the Middle East, Russia and Ukraine.
With only one quarter left to go, the group has ample cushion built into its forecast. Its topline rose 1.4 percent in the first nine months during which it achieved a 6.4 percent group operating margin, compared to its full-year target corridors of plus or minus 3 percent in revenue and a group margin of 5.5 percent to 6.5 percent.
“Although I hoped for more, it’s understandable that management was cautious -- it’s better to surprise positively than disappoint later.”
One example of VW’s reserved stance is that Poetsch’s profit forecast implies a sequential decline in operating profit of more than 8 percent in the fourth quarter to just 2.96 billion, which analysts are not buying.
A drop would be unusual since Q4 results are typically stronger than the seasonally weak third quarter, when VW pays employee wages despite idling production plants due to summer holidays. Operating profit in the final quarter of last year surpassed that of the preceding one by 12 percent.
Little room for improvement?
In fact, the earnings outlook is so rosy, it raises concerns over a whole new problem -– whether there still be enough space left for a material improvement come next year.
One thing that helps flatter earnings growth this year that VW cannot expect to benefit from next year is a weaker base comparison. Without contingency reserves in the “low hundreds of millions of euros” recognized in the first quarter of 2013 at its passenger car and power engineering operations, earnings could have potentially breached the 12 billion mark last year already and therefor reduced the increase expected this year.
“With solid 2014 earnings, the question will be how much earnings momentum will be left for 2015?” asked Arndt Ellinghorst, ISI Group’s head of automotive research.
Estimates from Thomson Reuters suggest the market is counting on VW to deliver next year a 10 percent rise in earnings to 23.51 euros a share.