Volkswagen Q1 Profit Soars To $2.5 Billion

Emerging markets helping VW post strong vehicle sales

FRANKFURT, Germany (AP) -- Automaker Volkswagen AG sharply increased net profit to euro1.71 billion ($2.5 billion) in the first quarter as stronger sales in emerging markets such as China, Argentina, and Russia more than made up for slumps in debt-stricken European countries.

Earnings per share of euro3.47 topped analyst expectations of euro3.23. Company shares rose steadily after Wednesday's announcement and traded up 6 percent at euro117.45 by midafternoon German time.

The company reiterated that this year's earnings would exceed last year's, despite a drag on profits from see-sawing exchange rates and higher raw materials prices.

Volkswagen delivered 1.99 million cars worldwide, up 14 percent, outperforming the world auto market, which grew 8.1 percent, the company said. Revenue jumped 31 percent to euro37.47 billion.

Big jumps in vehicle deliveries in China, Mexico and Argentina - up 20 percent or more - and in India, where they more than tripled, showed how rapidly growing emerging markets are eclipsing richer countries in Europe as markets for European manufacturers.

Company officials said they had boosted their cash holdings, giving them flexibility to continue expanding and meet their goal of being the world's largest carmaker by 2018.

"Our brand continued to perform successfully in the first three months of 2011," the company's chief financial officer, Hans Dieter Poetsch, said on a conference call. "Thanks in particular to higher revenue and a firm hand on operating costs, operating earnings more than tripled to euro2.9 billion."

While the company stuck with its forecast, shifting currencies, in particular the weakening U.S. dollar and British pound, were expected to have an effect on the companies finances, as would the rising cost of raw materials such as steel.

The company said it had seen only very limited effects on parts supplies due to the earthquake and nuclear disaster in Japan and that earnings had not been affected.

Analyst Max Warburton at Sanford C. Bernstein called the result "a stunning beat," especially when measured by the EBIT figure, or earnings before interest and taxes, of euro2.9 billion, which represents a "fantastic" operating profit margin of 7.8 percent across the group.

That includes not just higher-margin Audi but the mass market Volkswagen brand as well, a segment where margins are usually lower.

Warburton said the earnings appear to be a part of a wider trend in favor of German cars that also helps competitors BMW AG and Daimler AG, which traded up 2.1 and 2.7 percent.

Sales in Western Europe grew more slowly, and were hard hit in countries saddled with heavy government debt and slow growth. Sales in Britain rose only 2.4 percent, while they were flat in Italy and sank in Spain, where the unemployment rate is around 20 percent.

Volkswagen's home market, Germany, showed some recovery, with sales bouncing back to its 10-year average for the first quarter as a stronger job market gave consumers more confidence.

VW unit sales in the United States rose 16 percent amid stronger consumer confidence, although the market remains far below the credit-boom period 1999-2007.

Wolfsburg-based Volkswagen AG includes the Volkswagen, SEAT, and Skoda mass-market brands, and luxury makes Audi, Lamborghini, Bentley, and Bugatti.

The company said it was making progress toward completing its complex merger with Porsche. Volkswagen has a 49.9 percent share in Porsche's automaking operations and has the right to buy the rest later, but a merger with Porsche's parent company has been held up by legal questions.

Stuttgart-based Porsche separately announced it had more than doubled operating earnings to euro496 million in the first quarter, and raised sales revenue 10 percent to euro2.28 billion.

Unit sales rose 13 percent to 23,442 vehicles in the quarter, an increase of 13 percent from a year earlier.

Share This Photo X