FRANKFURT -- Volkswagen AG stuck to its 2004 earnings guidance on Thursday after posting a smaller than expected decline in third-quarter operating profit, helped by cost savings.
VW said pricing pressure and currency effects contributed to a 23 percent fall in quarterly operating profit to $619.6 million before one-offs, beating the $596 million average forecast in a Reuters poll.
The company, which also makes Audi cars, stuck to its guidance for 2004 operating profit of $2.42 billion, excluding $510 million in restructuring charges, but said market conditions remained tough.
The fall in earnings could reinforce management's demand for a two-year pay freeze for the 103,000 workers at VW's six western German plants when the company meets with union negotiators on Thursday for a fifth round of crucial wage talks.
VW said its ForMotion efficiency program was on track to deliver more than $1.27 billion in savings, after pitching in more than $1.08 billion in the first three quarters.
Net cash flow at VW's automotive division improved to a positive $1.37 billion by the end of the first nine months.
CHINA PROFITS TUMBLE
Losses in North America continued to mount but not as much as feared -- to $782 million in the nine months from $641 million in the first half. VW had warned of a high risk that second half losses could exceed those seen in the first six months.
Lower deliveries and currency headwinds meant the contribution of its Chinese joint ventures to nine-month profits fell to $342 million euros from $594 million in the year earlier.
The VW brand group, which includes Skoda, Bentley and Bugatti cars, swung to a nine-month loss of $60 million from a profit of $495 million in the previous year due in part to sales incentives. Outside the VW brand group, Fiat also makes Seat and Lamborghini cars. Its struggling commercial vehicles division widened its nine-month loss by only $9 million to $203 million from a year earlier.
Revenues rose 0.8 percent to more than $27.30 billion euros, while deliveries to customers slid 0.6 percent to 1.23 million vehicles due entirely to a drop in its Germany. Net profit slumped 65 percent to $97 million.
While Volkswagen is threatening its German workers with job losses should they fail to agree on a labor cost-cutting package, mass-market rivals in France are zooming ahead thanks in part to a lack of exposure to the United States.
On Wednesday, Renault wowed investors with a forecast-beating 8.9 percent rise in third-quarter revenues and reaffirmed its target of a 5.5 percent operating profit margin for 2004. Far from cutting jobs, Renault plans to add 10,000 employees next year -- half of them in France.
Despite the difficulties at Volkswagen, investors have valued the company at a premium to its European peers, underpinned by the market's belief in resurgent profits next year due to key product renewals and an expected $3.82 billion in targeted cost savings.
CEO Bernd Pischetsrieder underlined his commitment to the $5.10 billion ForMotion efficiency program by angling star executive Wolfgang Bernhard to manage the VW brand group, a move analysts rewarded with a slew of upgrades.