July 24 (Bloomberg) -- Hyundai Motor Co., South Korea’s largest automaker, reported a drop in second-quarter profit after the strengthening won eroded earnings from overseas.
Net income declined 6.5 percent to 2.24 trillion won ($2.2 billion) in the three months ended June from 2.4 trillion won a year earlier, the Seoul-based carmaker said in a statement today. Profit was projected to be 2.25 trillion won, based on the average of 24 analyst estimates compiled by Bloomberg.
The won, the fastest-appreciating major currency in the last quarter, is hampering the competitiveness of South Korean exporters in global markets. Hyundai said today it expects the won to continue to strengthen and the Japanese yen to remain weak in the second half of the year, extending the difficult business environment for the carmaker.
“Our outlook for the rest of the year doesn’t look so positive,” Lee Won Hee, the company’s chief financial officer, said today on a conference call. “The won strengthened against almost all of the global currencies in the first half of this year, making the traditional methods of hedging currency risks, such as diversifying settlement currencies, obsolete.”
Operating profit, or sales minus the costs of goods sold and administrative expenses, fell 13 percent to 2.09 trillion won, missing the 2.23 trillion won average analyst estimate compiled by Bloomberg.
Hyundai rose 1.6 percent to 229,000 won in Seoul trading, compared with the 0.1 percent decline by South Korea’s benchmark Kospi stock index.
The won appreciated against every major currency except the New Zealand dollar in the year ended June 30. The South Korean currency gained about 13 percent versus the dollar, hampering the ability of the country’s exporters to compete in global markets. The Japanese yen weakened 2.2 percent against the dollar in the same period.
Hyundai forecast the won will average 1,020 against the dollar in the second half, while the yen will be at around 100 against the dollar, helping Japanese automakers “aggressively market” their vehicles, Lee said. The won traded at 1,028.78 to the dollar and 10.14 to the yen as of 4:06 p.m. in Seoul.
South Korea’s gross domestic product in the April-to-June period expanded at 0.6 percent, its slowest pace in five quarters, and below the median 0.7 percent estimate in a Bloomberg News survey of 17 economists. President Park Geun Hye’s administration today unveiled 11.7 trillion won in government initiatives to shore up the economy.
For Hyundai, competition is getting tougher in markets such as China and the U.S., where its delivery growth is lagging behind the industrywide average.
Hyundai boosted sales 9.6 percent in China in the first six months of this year, lagging behind the 11 percent industrywide growth rate, according to company and auto association data. By comparison, Ford’s deliveries surged 35 percent in the same period, narrowing the gap with fourth-ranked Hyundai among foreign manufacturers in the world’s largest auto market.
In the U.S., Hyundai’s sales also underperformed industrywide growth last quarter, according to company data. Its deliveries in the first six months rose by less than 1 percent, the data shows.
Dave Zuchowski, Hyundai’s U.S. chief, said the carmaker will recover the market share it lost during the past two years as it takes the constraints off its global factory output and boosts production. Hyundai is aiming for 4.7 percent share, as it rolls out redesigned versions of its Genesis luxury car and Sonata family sedan, Zuchowski said in an interview in May.
Hyundai is already seeing the effects of its two new models at home. Domestic sales of the Sonata rose 62 percent last quarter and sales of the Genesis jumped almost threefold, helping the company’s Korean sales to its biggest gain in six quarters, according to company data.
The automaker has raised its sales projection for the Genesis this year by 12 percent, Lee said, without saying what the annual target was. The company said in November it planned to sell 62,000 units this year. Hyundai plans to increase production of the model at its Ulsan plant in South Korea to meet increasing global demand, he said.
Premium sedans such as the Genesis typically carry higher profit margins, said Lee Sang Hyun, an analyst at NH Investment & Securities Co. South Korea accounted for 66 percent of the company’s global premium sedan sales in 2013 and 44 percent of total revenue, according to company figures and data compiled by Bloomberg.
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