It has undoubtedly been a tough couple of months for Volkswagen, and news Tuesday for the German automaker did not get better. For the first time in 15 years, Volkswagen reported a quarterly loss.
The loss, totaling $1.9 billion for the quarter, comes on the back of a sweeping emissions scandal that rocked the once trusted company to its core.
Jack Ewing of The New York Times had the day’s news:
Volkswagen said on Wednesday that it had a net loss of $1.84 billion in the third quarter, its first quarterly decline in more than a decade, as it set aside a huge sum to help cover the expected damage from the company’s emissions-cheating scandal.
The loss, totaling 1.67 billion euros, compared with a profit of €2.97 billion in the third quarter of 2014.
Volkswagen subtracted €6.7 billion from profit to cover the cost of recalling and repairing about nine million cars equipped with illegal software intended to cheat on emissions tests. The effect of the deceptive software on sales and revenue is likely to get worse in coming quarters, analysts say.
Volkswagen has already said the cost of the scandal would exceed the €6.7 billion it has set aside. The company said it expected profit for full-year 2015 “to be down significantly” from 2014.
William Boston of The Wall Street Journal broke down the automaker’s earnings one step further:
“The figures show the core strength of the Volkswagen Group on the one hand, while on the other the initial impact of the current situation is becoming clear. We will do everything in our power to win back the trust we have lost,” said Chief Executive Matthias Müller.
Volkswagen also issued a profit warning for the full year, saying that “because of the charges related to the irregularities in the software used for certain diesel engines, we expect 2015 operating profit for both the group and the passenger cars business area to be down significantly year-on-year.”
Analysts had estimated that Volkswagen would report a loss of €1.6 billion in the third quarter, according to a poll of more than a dozen analysts by The Wall Street Journal.
The emissions crisis, which erupted at the end of the quarter, had almost no impact on the company’s operations. Group revenue, which excludes sales revenue from Volkswagen’s joint ventures in China, rose 5.3% to €51.5 billion, boosted by strong sales in Western Europe and bucking the continued decline in emerging markets such as Russia and Brazil.
Volkswagen’s admission that it used software to manipulate the results of emission testing to sidestep pollution standards in millions of cars has rocked the auto maker. And the figures involved are pretty staggering. WSJ’s Dipti Kapadia explains the scandal in numbers. Photo: Getty Images
Operating profit, which doesn’t include China and doesn’t account for the financial impact of the provisions taken to pay for the recall, before special items fell 0.7% to €3.2 billion, buoyed by strong growth at the company’s main car brands, luxury car maker Audi AG and sports car maker Porsche AG.
Catherine Boyle of CNBC pointed out that the company’s share price rose despite the huge loss:
Volkswagen’s share price rallied on Wednesday despite an operating loss of 3.48 billion euros ($3.84 billion) in the third quarter, as a scandal over falsifying its diesel emissions knocked the company.
The carmaker was forced to take its first quarterly loss for 15 years, slightly deeper than analysts’ forecasts, as it anticipated hefty payouts to consumers around the world over the deceptive data on its diesel emissions and the potential recall of 11 million cars. This set of results factored in a 6.7 billion euros writedown related to the scandal, lower than some had feared. After a couple of hours of trade, the stock was up close to 4 percent.
Sales revenues in the first nine months of the year were up 8.5 percent, and the carmaker reaffirmed its full-year new car deliveries of around 10.14 million. One positive step for investors could be the carmakers’ discussions with European Union member states’ authorities to limit legal action beyond what has already been agreed with Germany’s KBA (Federal Motor Transport Authority).
Timothy Rea, analyst at BNP Paribas, described the results as “messy as expected” in a research note Wednesday, but added “importantly, liquidity remains strong (better than we expected) and VW emphasizes this will help it to manage the situation it finds itself in”.
