VW Profit Drops on Diesel Charge -- WSJ

By William Boston Features Dow Jones Newswires

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (October 28, 2017).

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BERLIN -- Volkswagen AG reported a steep drop in third-quarter earnings Friday, as Europe's biggest car maker grapples with the mounting costs of its diesel emissions scandal.

The story of Volkswagen's earnings is like a tale of two companies. When diesel-related costs are factored out, the company is raking in record profits. But the bottom line -- what's left for shareholders after all costs are stripped out -- is being eroded by the scandal's costs.

Volkswagen took a fresh diesel-related charge of EUR2.6 billion ($3.0 billion) against quarterly earnings, putting its net income in the three months to Sept. 30 at EUR1.06 billion, down from EUR2.28 billion a year earlier. The upshot: investors' earnings per share plunged to EUR2.12 from EUR4.54 a year earlier.

Investors shrugged off the one-off hit to earnings and focused instead on a 15% jump in operating income before adjustments for the one-off diesel charge to EUR4.32 billion from EUR3.75 billion a year earlier.

Volkswagen's widely traded preference shares traded as much as 3.2% higher at EUR150.10 on the news and were still up about 2% at EUR148.90 around midday, one of the best-performers on the Frankfurt stock exchange.

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So far this year, the company has paid out EUR14.5 billion in diesel-related costs and expects to shell out another EUR2.5 billion by the end of 2017, Chief Finance Officer Frank Witter said.

"The diesel issue is nowhere near an end and will continue to necessitate great efforts throughout the entire group," he added in a statement.

Revenue from Volkswagen's dozen brands that include luxury car maker Audi, sports car maker Porsche, VW, Lamborghini, MAN and Scania trucks and Ducati motorcycles rose 5.8% to EUR55 billion from EUR52 billion.

Encouraged by lower costs and higher margins at its VW brand, the company's biggest business by sales, Volkswagen slightly raised its outlook for operating income for the full year, but noted challenges.

The company said growth in global auto markets is slowing. In western Europe, Volkswagen sales are up just 1.1% so far in 2017, and 1.3% in China, the company's largest single market.

As new car sales appear to soften world-wide, the diesel scandal continues to chip away at the company's profits.

"I don't believe this will be the last time they take a charge," said Frank Schwope, an automotive analyst at NordLB, a German bank.

In the two years since U.S. authorities disclosed that the company had rigged diesel engines to cheat on emissions tests, Volkswagen has taken charges of around EUR25 billion to pay for legal fees, penalties and fines, and compensation for customers.

Max Bernhard in Barcelona contributed to this article.

Write to William Boston at william.boston@wsj.com

(END) Dow Jones Newswires

October 28, 2017 02:47 ET (06:47 GMT)