April 26 (Bloomberg) -- Kia Motors Corp., South Korea’s second-largest automaker, posted a 35 percent drop in first-quarter profit after production at its main domestic factories fell and the won strengthened against the yen.
Net income declined to 783.9 billion won ($707 million), from 1.2 trillion won a year earlier, the Seoul-based company said today in a statement. That lagged behind the 836 billion won average estimate of 19 analysts surveyed by Bloomberg for 28 days. Revenue fell 6 percent, though Chief Financial Officer Park Han Woo forecast sales in the current quarter will be higher than in the first.
The automaker joined larger affiliate Hyundai Motor Co. in posting a profit drop as labor concessions shackle the company’s ability to make cars at home and the won’s 25 percent gain against the yen in the past year is blunting Korea Inc.’s edge over Japan Inc.
Kia rose 0.2 percent to 52,600 won at the close in Seoul trading. The benchmark Kospi fell 0.4 percent.
Operating profit, or sales minus the cost of goods sold and administrative expenses, fell 35 percent to 704.2 billion won. That compares with the 707 billion won average analyst estimate compiled by Bloomberg.
Exports out of South Korean plants plunged 11 percent last quarter after the company, along with Hyundai, reduced working hours by ending overnight shifts in March. Production at the Korean plants fell 11 percent in March alone, according to the company’s website.
“A new shift system has cut the company’s production at its domestic plants, and on top of that, only one of its three plants in South Korea have agreed on terms for weekend overtime,” Lee Sang Hyun, an analyst at NH Investment & Securities Co. said. “With added pressure from competitors armed with the weakening yen, and a lack of new models, the company struggled last quarter.”
The labor union at two of three Kia plants in South Korea have refused overtime work on weekends unless compensation is increased, according to statements on the union’s website.
“Our Gwangju plant, having bigger portion of the overtime demand, has been conducting weekend operation since March 16, so our loss is not that significant,” the company said in an e-mailed response to a Bloomberg query.
In the past six months, the yen has weakened against every major currency, including 19 percent versus the dollar. The yen will probably weaken to 101 a dollar by the end of the year, while the won is projected to gain almost 3 percent to 1,080 per dollar, the sharpest gain among Asian counterparts, surveys show, according to average estimates compiled by Bloomberg.
This trend won’t help Kia, which has forecast this year’s sales to rise by 1.3 percent to 2.75 million units. Combined sales at the carmaker and Hyundai will probably increase 4.1 percent to 7.41 million units, the lowest growth in seven years, according to the companies.
Kia’s sales in the U.S. slumped 8.1 percent as deliveries of the Soul wagon fell 11 percent, and Forte compact fell 17 percent, according to the company.
The company set aside more than 40 billion won to manage the recalls in the U.S. on electronic defects, Park said. Earlier this month, the company together with Hyundai, recalled more that 1.7 million vehicles from five model years on stop-lamp switch defects.
In Europe, Kia’s sales rose 5.4 percent, bucking a 20-year low industry demand, as deliveries of its Cee’d hatchback and Sportage sport utility vehicle increased.
Kia’s vehicle sales in China increased 26 percent to 137,567 units, according to an e-mailed statement from Kia on April 3.
Sales of the Sportage SUV jumped 39 percent in the world’s biggest auto market from a year earlier while those of the K2 small sedan rose 17 percent, according to the company’s website.
Hyundai Motor, which owns 34 percent of Kia, yesterday reported first-quarter profit fell 15 percent to 2.09 trillion, beating the 1.99 trillion won average of 18 analyst estimates compiled by Bloomberg for 28 days.
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