Volkswagen Profit Surges More Than 50 Percent

via The New York Times

Operating profit at Volkswagen rose more than 50 percent in the third quarter, thanks to resurgent earnings at its core VW brand, after the carmaker cut thousands of jobs last year.

After initially trading sideways, shares in VW were swept up by overall positive sentiment for the sector. Its French rivals PSA Peugeot Citroën and Renault rallied as well after strong results published late on Thursday.

Volkswagen’s finance chief, Hans Dieter Pötsch, said in a conference call that strong earnings growth would continue.

VW increased quarterly operating profit to 1.46 billion euros ($2.1 billion), easily beating the average estimate of 1.31 billion euros in a Reuters poll of 17 analysts.

The group affirmed that it expected to earn at least 5.1 billion euros before tax in 2007, a year earlier than the original goal, adding that its operating result would grow “substantially” over last year’s figure of 4.38 billion euros before special items.

“VW is set to not only easily surpass its year-end 5.1 billion euros pretax target, but we think it could even exceed 6.5 billion euros,” Morgan Stanley analysts wrote, adding that earnings could plunge 77 percent in the fourth quarter and still meet VW’s target.

But an analyst for Sanford C. Bernstein & Company, Stephen Cheetham, wrote that VW was at “an all-time valuation peak reflecting both peak earnings and a bid premium: we believe the risks are skewed to the downside and rate the stock ‘underperform.’”

Net liquidity at VW’s automotive operation at the end of September increased by almost 70 percent, to about 13.9 billion euros, after it radically reduced its debt, while free cash flow stagnated mainly because of expenses incurred in building its stakes in the European truck makers MAN and Scania early this year.

In an interview to be published on Saturday in Süddeutsche Zeitung, Volkswagen’s chief executive, Martin Winterkorn, pledged to increase productivity every year by 10 percent and to ensure that parts for future models can be more easily assembled.