Hyundai Motor Profit Beats Analysts’ Estimates; Shares Gain

Hyundai Motor Co., South Korea’s largest carmaker, reported first-quarter profit that exceeded analysts’ estimates, driven by record sales in China. The shares rose the most in a year.

Net income fell 15 percent to 2.09 trillion won ($1.9 billion), compared with 2.45 trillion won a year earlier, the Seoul-based company said in a statement today. Profit beat the

1.99 trillion won average of 18 analyst estimates compiled by Bloomberg for 28 days. Sales increased 6 percent.

Hyundai’s China sales jumped 41 percent, helping the company narrow the gap with Tokyo-based Nissan Motor Co. as consumers in the world’s largest auto market shun Japanese vehicles because of a territorial dispute. The surge in China sales comes as the Korean carmaker contends with a 25 percent gain in the won against the yen in the past year and labor concessions hindering the company’s domestic output.

“Although concerns on the strong won and weak yen that hurt our cost competitiveness still remain, it will be something that we will be able to manage,” Lee Won Hee, Hyundai’s chief financial officer, said during a conference call today. “We expect the sales contribution from developing markets to increase as the new plants in China and Brazil enhance our productivity.”

Operating profit, or sales minus the costs of goods sold and administrative expenses, fell 11 percent to 1.87 trillion won. That compares with the 1.85 trillion won average analyst estimate compiled by Bloomberg.

Hyundai shares rose 5.7 percent to 195,500 won at the close of trading in Seoul, the biggest gain since April 2012. The benchmark Kospi index climbed 0.8 percent.

Currency Edge

Still, Hyundai and smaller affiliate Kia Motors Corp. are the worst performers on the Bloomberg World Auto Manufacturers Index in the past year as the won appreciates against the yen.

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 more than 3 percent to 1,080 per dollar, the sharpest rise among Asian counterparts, the surveys show, according to average estimates compiled by Bloomberg.

Hyundai has forecast this year’s sales to rise at the slowest pace since 2007, projecting deliveries to increase 5.9 percent to 4.66 million units. Combined sales at the carmaker and Kia will probably increase 4.1 percent to 7.41 million units, the lowest growth in seven years, according to the companies.

Yen Forecast

Hyundai’s projections for the yen this year are more “conservative” than the 100 yen to the dollar exchange rate that banks are projecting for the year, Lee said, without giving a more specific target.

Exports out of South Korean plants slumped 11 percent last quarter after the company reduced working hours by ending overnight shifts in March. The new schedule reduced production by three hours each day and production at the Korean plants fell 19 percent in March alone, according to the company’s website.

The labor union has also refused overtime work on weekends unless compensation is increased, according to a statement on the union’s website. The company estimates that has cost the company about 48,000 vehicles, or 950 billion won, in production over seven weekends.

Domestic production will recover from the second quarter onward once the union and the company reach an agreement on the issue of weekend overtime, Hyundai’s CFO Lee said. The company will meet its annual sales target by making up the loss in output, he said.

U.S. Sales

Hyundai’s sales in the U.S. rose less than 1 percent as deliveries of the Sonata mid-size sedan fell 14 percent, offsetting the 34 percent jump in sales of the Santa Fe sport utility vehicle, according to the company.

The company set aside 90 billion won in the first quarter to manage the recalls in the U.S. on electronic defects, Lee said. Earlier this month, the company and affiliate Kia recalled more that 1.7 million vehicles from five model years on stop-lamp switch defects.

In Europe, where industry demand is at a 20-year low, Hyundai’s sales fell 11 percent as deliveries of its Tucson SUV and i10 compact slumped.

Hyundai vehicles sales in China increased 41 percent to a record last quarter, selling 260,716 units, according to an e-mailed statement from Hyundai on April 3.

China Gains

Honda Motor Co. and Toyota sales in China have yet to recover after violent protests broke out across the country last year over a territorial dispute with Japan. The riots have subsided, while Japanese carmakers are continuing to lose market share.

While Toyota has said it doesn’t expect sales in China to fully recover before autumn, this year’s sales growth will also hinge on a recovery there. The Japanese carmaker recorded its first annual sales decline last year in China since at least

2002. Its sales in China fell 13 percent last quarter, excluding its Daihatsu Motor Co. and Hino Motors Ltd. units, spokesman Ryo Sakai said.

Beijing Hyundai Motor, the Korean company’s Chinese venture, is targeting to boost sales to 1.4 million units by

2015. That’s more than 60 percent higher than its deliveries last year.

“The company has been doing very well in China, thanks to the enhanced production at its third plant,” said Shin Chung Kwan, an analyst at KB Investment & Securities Co. “Hyundai is by far one of the best players in China at the moment, and I expect the growth to continue into the second quarter.”

(Updates with comment from CFO in 10th paragraph.)
    Before it's here, it's on the Bloomberg Terminal. LEARN MORE