Volkswagen on right path for new CEO despite profit hit

On Thursday, Volkswagen’s (DE:VOWG_p) first-quarter operating profit fell but optimism over its new chief executive and lower diesel emissions scandal provisions lifted its shares.

The German carmaker is shifting the focus to making its operating business more efficient, two weeks after elevating brand chief Herbert Diess to group CEO as part of the biggest management shake-up in more than a decade.

Diess said after VW posted group earnings before interest and taxes of 4.21 billion euros ($5.1 billion), a fall of 3.6 percent said the Volkswagen group is in a robust economic position. The quarterly results confirm that we are on the right path.

This was below the 4.47 billion euro consensus forecast in a Reuters poll of banks and brokerages.

“Negative effects from switching to the IFRS accounting standard had contributed to the profit drop, adding that underlying earnings slightly exceeded last year’s 4.37 billion if the changes were excluded”, said VW.

NordLB analyst Frank Schwope who has a “Buy” recommendation on the stock, said that the market is hoping for Diess to push further profitability gains and is taking joy from the fact that Dieselgate risks are abating, in reference to the diesel emissions test cheating scandal which has cost VW about $30 billion in fines and other costs.

The scandal has prompted major changes at Europe’s largest automotive group, which is reorganizing its multiple car brands and carving out truck operations while shouldering billions of investments in battery-powered and self-driving vehicles.

Between January and March, the group set aside no more significant funds to cover fines, compensation and vehicle refits related to its 2015 emissions scandal, after it raised provisions by another 600 million euros in the fourth quarter to a total of 25.8 billion euros.

VW shares were up 2.5 percent to 171.1 euros at 0824 GMT, outperforming Germany’s benchmark DAX (GDAXI) index.

The carmaker stuck to its 2018 guidance published in February, predicting a return on sales of between 6.5 and 7.5 percent before special items, compared with 7.4 percent in 2017.

VW said that revenue is expected to exceed the 2017 record of 231 billion euros by as much as 5 percent while group deliveries may moderately exceed last year’s 10.7 million vehicles. /

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