Hyundai Motor Profit Rises 10% on Tucson Sales in Europe

Hyundai Motor Profit Rises 10%, Helped by Tucson Sales in Europe
Net income climbed 10 percent to 2.55 trillion won ($2.2billion) from 2.31 trillion won a year earlier, the Seoul-based company said in a statement today. Photographer: SeongJoon Cho/Bloomberg

Hyundai Motor Co., South Korea’s largest carmaker, reported second-quarter profit that beat analysts’ estimates as sales of the Tucson sport-utility vehicle helped the company buck an industrywide drop in Europe.

Net income climbed 10 percent to 2.55 trillion won ($2.2 billion) from 2.31 trillion won a year earlier, the Seoul-based company said in a statement today. Profit beat the 2.43 trillion won average of 26 analysts’ estimates compiled by Bloomberg. Revenue increased 9.2 percent to 21.9 trillion won.

Sales climbed 15 percent in Europe, according to revised company data, led by the sales of Tucson, at a time when industrywide deliveries in the region dropped 3.2 percent, according to data compiled by Bloomberg. Sales may slacken in the second half as the global economy slows. Still, Hyundai will likely maintain its operating profit as it cuts costs in the U.S. and the strong yen hurts Japanese automakers.

“Undoubtedly Hyundai’s volume sales will be affected by the declining economy,” said Heo Pil Seok, chief executive officer of Seoul-based Midas International Asset Management Ltd., that oversees $2.65 billion in assets including Hyundai shares. “However, the company will be able to keep its edge as the strengthening yen plays against Japanese competitors and low incentives in U.S. cuts costs for the automaker.”

Operating Profit

Operating profit, or sales minus the cost of goods sold and administrative expenses, rose 18 percent to 2.5 trillion won. That exceeded the 2.48 trillion won average analyst estimate compiled by Bloomberg.

Hyundai rose 1.6 percent to 223,500 won in Seoul trading, extending the stock’s gain this year to 4.9 percent. The benchmark Kospi stock index has fallen 2.4 percent.

The automaker’s earnings announcement comes amid strikes held by its union. Hyundai’s union, which has a larger membership than at any other South Korean company, has staged two partial strikes during this month to demand higher wages and reduced working hours.

Hyundai slashed its global industrywide automobile demand forecast, citing a worse-than-expected economic situation in Europe and China. The company expects 77.1 million units to be sold globally, down by about 500,000 units from its April forecast, Chief Financial Officer Lee Won Hee said.

Industrywide demand in China will be 12.95 million vehicles, a decrease from about 13.6 million units forecast in April, and Europe’s demand will be 14.09 million, down by about 210,000 units from the earlier projection.

“The economic situation in Europe will worsen in the second half of this year,” Lee said on a conference call. “Still, Hyundai will be able to meet the global sales target we set earlier this year.”

Labor Strikes

The company estimates a production loss of 8,630 units or 175 billion won during the two-day partial strikes that took place on July 13 and July 20, according to an e-mailed response to a Bloomberg query.

For the remainder of the year, Hyundai’s priority should be to resolve a wage accord with its union before the effects of the strikes hurt production beyond a manageable degree, said Lee Sang Hyun, an analyst at NH Investment & Securities Co.

“The aftermath of the strikes will cause this quarter’s earnings to fall below the previous quarter’s results,” Lee said. “The company will have to ramp up production to make up for the loss in the fourth quarter.”

In South Korea, its biggest production base, Hyundai’s sales fell by 2.4 percent last quarter as the ripples from Europe’s economic crisis and rising household debt undermined consumption, according to an e-mailed statement from the Korean Automobile Manufacturers Association. The Bank of Korea today reported second-quarter gross domestic product expanded at the slowest pace in almost three years.

Sales Overseas

In the U.S., Hyundai sales in the quarter rose 7.2 percent, trailing the industry’s 16 percent gain, as deliveries of its Elantra small sedan fell 14 percent.

Increased deliveries of full-size sedans in the U.S. market probably boosted Hyundai’s earnings last quarter because those models typically generate higher profitability than smaller vehicles, said Lee Sang Hyun, an analyst at NH Investment & Securities Co. U.S. sales of Hyundai’s Azera and Genesis, which compete against Bayerische Motoren Werke AG’s 5-series and Toyota’s luxury brand Lexus’ GS models, rose fivefold and 38 percent last quarter, respectively.

China Demand

In Europe, which is on pace for a fifth consecutive year of vehicle-sales declines, Hyundai gained market share as it benefited from demand for its Tucson SUVs and i20 hatchback.

Hyundai sales in China decelerated as the world’s second-largest economy slowed and concerns are mounting demand may slump further.

Guangzhou, the capital of Guangdong province bordering Hong Kong, began imposing a quota this month on new vehicle registrations to control vehicle emissions and ease traffic congestion. The restrictions in Guangzhou -- which followed Beijing, Shanghai and Guiyang in implementing curbs on vehicles -- led Morgan Stanley to say in a July 2 report that 11 other cities are candidates to also implement limits on cars.

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