FRANKFURT -- Volkswagen Group's profit rose 3.4 percent in the first quarter, although profit at the core VW brand plunged 86 percent, highlighting the challenge the carmaker faces in emerging from the nearly nine-month-old emissions cheating scandal.
Group operating profit climbed to 3.44 billion euros ($3.83 billion) from 3.33 billion euros last year, VW said in a statement today. Operating return on sales of 6.8 percent, the company said.
The result included about 300 million euros in positive special items, including currency-related adjustments on the provisions VW set aside to cover costs related to the diesel cheating.
Revenue fell 3.4 percent to 51 billion euros.
The company has "achieved respectable results under difficult conditions," CEO Matthias Mueller said in the statement. "2016 will be a transitional year for Volkswagen that will see us fundamentally realign the group."
Sascha Gommel, a Frankfurt-based analyst with Commerzbank, said: "The result at the VW brand showed yet again that earnings there are far too low. They need to safeguard pricing going forward as costs at the VW brand are relatively high."
Evercore ISI analyst Arndt Ellinghorst said the VW brand is taking on the majority of the costs related to the emissions scandal. "In most circumstances, the other brands are being reimbursed for their diesel-related costs by the VW brand," he wrote in a note to investors.
VW brand hit hard
Quarterly operating profit at the core VW brand fell to 73 million euros from 514 million, while its operating margin was a meager 0.3 percent.
In contrast, the group's Porsche and Skoda units provided some good news while Audi's result was flat and Bentley swung to a loss.
Porsche's operating profit increased to 895 million euros from 765 million due to higher unit sales. Its operating margin grew to 16.6 percent from 15.1 percent.
Skoda's operating profit rose by just over 30 percent to 315 million euros with its margin rising to 9.3 percent from 7.6 percent.
Audi's operating profit was 1.3 billion euros, almost level with last year's first-quarter result. Its operating margin dropped to 9.0 from 9.7 percent on currency effects and higher investments in new products and expanding production.
Seat's operating profit rose to 54 million euros from 33 million. Its profit margin grew to 2.6 percent from 1.5 percent.
Bentley swung to a 54 million euros loss compared with a 49 million profit in the same quarter last year.
Volkswagen’s performance also suffered in China, its biggest market. Proportionate profit from its two Chinese joint ventures fell 27 percent to 1.17 billion euros.
Analysts have said heightened competition in China has led the company to step up incentives for buyers ahead of the expiry of tax breaks for smaller cars at the end of this year.
VW stuck to its full-year outlook, saying revenue will decline as much as 5 percent, while the operating profit margin excluding special items will be in a range of 5 percent to 6 percent of revenue after reaching 6 percent last year.
Higher-than-expected group earnings reflect stronger momentum in VW's vehicle sales, benefiting from rebounding demand in China and growth in the high-margin European market. Despite the woes, the 12-brand group eked out 0.8 percent growth in worldwide deliveries to 2.5 million vehicles in the first three months, passing global market leader Toyota Motor Corp.’s 2.46 million.
VW still has a long way to go to put the crisis into the past.
The company set aside 16.2 billion euros last year to fix as many as 11 million diesel cars worldwide with manipulated engine-control software and pay for fines and lawsuits. Investigations into the origin of the cheating will drag on until the end of the year, and the company must hammer out a settlement with U.S. authorities by the end of June. A European recall will probably last until at least early 2017.
VW plans in mid-June to present a new strategy through 2025, with eight key initiatives including digital features and electric vehicles.
Reuters and Automotive News Europe contributed to this report