Volkswagen, the world's second-largest carmaker, posted an unexpected drop in fourth-quarter operating profit as its stock of unsold vehicles nearly doubled, ending an otherwise bumper year on a downbeat note.
Based on preliminary annual results on Friday, quarterly operating profit slipped nearly 1 percent to 2.29 billion euros, echoing a weakening of European demand already detected by other car makers.
Thanks in part to one-off gains on derivatives, full-year net profit more than doubled to 15.8 billion euros, VW said, one of the highest annual profits ever reported by a German company.
Earnings were published earlier than expected after a German newspaper reported VW's preliminary figures. Detailed results for the full year and an outlook for 2012 will be published at its annual news conference on March 12.
Sales chief Christian Klingler said earlier this month that the year would be "challenging" thanks to a European car market that experts say will shrink some 5 percent to a new decade-low.
Europe's number two carmaker PSA Peugeot Citroen (PEUP.PA) swung to an annual loss at its automotive business and refrained from giving any profit guidance, apart from its pledge to sell assets and cut more costs to repair its balance sheet.
The French rival is in alliance talks with General Motors (GM.N) loss-making German unit Opel to be more competitive in Europe, where Volkswagen is less exposed, because it sells one in four of its cars in China.
CHINA SLOWS
Credit Suisse analyst Arndt Ellinghorst said he doubted VW would be able to improve earnings this year without help from its newest subsidiary, German truckmaker MAN (MANG.DE), in which it gained a majority stake in November.
"Operating profit will likely only rise this year thanks to the consolidation of MAN's results," he said.
Car production at VW outstripped deliveries by nearly 100,000 in the final quarter, almost doubling the inventory overhang from the first nine months of the year.
This would not normally be a concern but deliveries in China fell nearly 5 percent in January, which VW ascribed to a Chinese lunar New Year festival.
While most analysts expect car sales to rebound this month, data on Wedneday showed activity in China's manufacturing sector, a key driver of economic demand, will likely shrink in February for the fourth straight month.
Bernstein analysts believe half of VW's profits come from China, because another 3 billion euros are earned on parts sales and royalties from its two local joint ventures, that contributed 2 billion in equity income in 2010.
LOW DIVIDEND YIELD
VW has been on a buying spree in recent years in a bid to topple GM and Toyota (7203.T) at the top of the industry.
Its cash pile shrank over 4 billion euros in the quarter to 17 billion due to the investments in MAN.
"It is not bad at all though, considering they splashed out some 7 billion (euros) to buy shares in MAN and increased their investments due to the all new Up! minicar and upcoming Audi A3," said Silvia Quandt analyst Albrecht Denninghoff.
On Monday, the supervisory board is set to discuss the possible acquisition this year of the remaining 50.1 percent of Porsche's sports car business for roughly 4 billion euros.
Cash pressure from new brands and new model launches means that preferred stockholders will only receive a payout of 3.06 euros per share for last year's record profit, which translates to a dividend yield of 2.2 percent.
Investors sent the stock lower by 1 percent to 137.75 euros as of 1400 GMT, trailing a European autos sector .SXAP that gained 0.3 percent.
"After this amazing rally at the start of the year, upside potential is dwindling, so adding to your (investment) position now is not as great an idea as it was two weeks ago," Denninghoff said.
Source :in.reuters.com
