FRANKFURT -- Volkswagen missed expectations on Thursday as it reported operating profit rose by a half in the third quarter on the back of continued cost savings. VW reaffirmed its full-year forecast for an unspecified rise in operating profit after special items as well as a gain in earnings before taxes, which includes the profit or loss contribution from its key Chinese joint ventures.
Quarterly operating profit after special effects rose to 586 million euros ($706.8 million) from 391 million euros a year earlier, compared with an average forecast of 717 million euros in a Reuters poll of 20 analysts.
The result was boosted by efficiency gains from VW's "ForMotion" restructuring program, which contributed gross earnings improvements of 2.6 billion euros over the first nine months. VW says this will rise to 3.1 billion euros by the year's end.
Pretax profit rose to 432 million euros, lagging the consensus estimate of 468 million euros.
Volkswagen said it would post a restructuring charge in the fourth quarter for the financing of its new German job-cuts program, but said one-off effects would be lower than the 395 million euros posted in 2004.
The main disappointment came from a weak automotive business, where all three core industrial divisions failed to meet market forecasts.
The Volkswagen Brand Group narrowed its third-quarter operating loss to 54 million euros, but fell way short of expectations of a 110 million euros profit. The company reaffirmed the VW brand would return to profit in the full year.
The Audi Brand Group reported only 300 million euros in earnings for the quarter versus estimates of 346 million euros, while Commercial Vehicles narrowed its loss to 9 million euros but did not match the 22 million euro profit forecast by analysts.
One of the problems remains North America, where the operating loss widened to a worse-than-expected 222 million euros.
Financial Services enjoyed a strong performance, with operating profit up a third to 336 million euros.
"Given the focus on restructuring-led improvement of the industrial operations under the stewardship of (VW Brand Group chief Wolfgang) Bernhard, we believe the financial services surprise offers little consolation to the stutter in auto profit improvement," Morgan Stanley told clients.
On the positive side, VW's "other" operating profit, which includes such things as the release of provisions and accruals, declined to 181 million euros from 274 million euros, mainly because of a drop at its automotive business.
Analysts had often criticized recent solid quarterly results because they said profits had been inflated by poor-quality earnings booked under this "other" line.
Net cash flow at Automotive rose to 1.03 billion eruos from 809 million euros a year ago amid a steep drop in capital spending.