Kia Motors Corp. (000270) reported a 51 percent slump in operating profit after the won’s gains eroded the value of exports and said it expects a “difficult year,” sending the stock to the lowest in more than two years.
Fourth-quarter operating income tumbled to 404.2 billion won ($377 million) from 826.9 billion a year earlier, the Seoul- based company said in a regulatory filing today. That was 35 percent below the average estimate of 621.4 billion won in a Bloomberg survey of seven analysts. Net income fell 6.7 percent to 737.5 billion won.
Kia’s shares fell as much as 5.2 percent after Chief Financial Officer Park Han Woo said 2013 will be a “difficult year” as the won posted the biggest gain last quarter among Asian currencies against the dollar. The automaker’s results underscore how South Korean exporters, including Hyundai Motor Co. (005380) and Samsung Electronics Co., are bracing for the end of a four-year period of favorable exchange rates.
“The results were far worse than I had expected,” Lee Sang Hyun, an analyst at NH Investment & Securities Co. said by phone. “I don’t think we can expect profitability to improve anytime soon.”
Kia fell 4.9 percent to 49,750 won at the close in Seoul trading, the lowest since November 2010. The benchmark Kospi index (KOSPI) declined 0.9 percent.
The won strengthened 4.4 percent last quarter against the dollar, gaining more than any other major Asian currency, according to data compiled by Bloomberg. Hyundai Motor Group, the umbrella group of Hyundai Motor Co. and Kia, expects the won to strengthen more this year, limiting exports, Kia said in an e-mail on Jan. 4.
Overseas sales account for 75 percent to 80 percent of the Seoul-based automakers’ sales. Each 10-won gain in the Korean currency’s value against the U.S. dollar lowers Kia’s profit by about 80 billion won, according to the statement. Kia forecast the won to continue strengthening to 1,050 won this year, according to an e-mailed statement on Jan. 4.
Samsung Electronics, the world’s largest maker of mobile phones, TVs and computer-memory chips, fell to the lowest in almost two months today after saying the strengthening won may cut operating profit by at least 3 trillion won this year.
The won is projected to gain more than 3 percent to 1,030 per dollar, according to the median estimate in a Bloomberg survey of analysts. The yen will probably end 2013 at 90 per dollar which would be the weakest finish to a year since 2009, the surveys show.
This trend won’t help Kia, which has forecast since early January that deliveries will rise 1.1 percent to 2.75 million vehicles this year, the slowest growth since 2006.
Hyundai Motor, which owns 34 percent of Kia, yesterday delivered fourth-quarter net income, operating profit and revenue that missed average analyst estimates. South Korea’s largest automaker said quarterly profit fell 5.5 percent to 1.89 trillion won, from 2 trillion won a year earlier.
Provisions for overstating fuel-efficiency ratings in the U.S. also dragged down fourth-quarter earnings at Kia.
Kia, together with Hyundai, said in November it overstated the fuel efficiency of some models in the U.S. This incurred costs of about 200 billion won in fourth-quarter earnings to reimburse customers, Joo Woo Jeong, a finance director at Kia, said on a conference call today.
“We expect a difficult year both at home and abroad, and expect this year’s profits to be similar to 2012,” Park, Kia’s CFO, said during the conference call.
The inflated ratings, for models including Kia’s Soul wagon and Hyundai’s Elantra sedan, led the two automakers to offer prepaid fuel cards to owners of 900,000 vehicles bought in the past two years.
China helped Kia ease the fallout from the currency and the fuel-economy claims in U.S. The company’s sales in the country jumped 11 percent in the last quarter after buyers in China favored vehicles from the South Korean carmaker, shunning Japanese autos because of a territorial dispute.
That helped boost the quarterly net income as the gains from China are recorded as equity interests and aren’t reflected in the operating income figure, according to Park.
Kia expects to sell about 500,000 units in China this year, after increasing deliveries to the world’s largest auto market by 11 percent to 480,566 vehicles in 2012.
In Europe, the automaker’s sales rose 14 percent during 2012, fueled by sales of the Cee’d hatchback and Sportage sport utility vehicles. The company aims to sell 335,000 units this year, up 1 percent, according to the company’s e-mailed statement.
Kia’s U.S. sales were up 15 percent last year, data on company’s website shows. This is above the average industrywide 13 percent rise in vehicle sales, according to data compiled by Bloomberg. This year, the company plans to boost U.S. sales by 2.2 percent to 570,000 units, according to the statement.
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