Hyundai Profit Beats Analyst Estimates on China to Brazil Demand

Hyundai Motor Co. profit and sales beat analysts estimates on demand in China and Brazil, while South Korea’s largest carmaker said competition with Japanese rivals is increasing and global demand will slow.

Net income, excluding minority interests, fell to 2.4 trillion won ($2.15 billion) from 2.45 trillion won a year earlier, the Seoul-based company said in a statement today, exceeding the 2.37 trillion won average of 15 analysts’ estimates compiled by Bloomberg. Operating profit and revenue also beat analyst estimates.

Demand for the Elantra Yuedong sedan helped Hyundai’s deliveries rise 32 percent in China last quarter, outpacing industry growth, while the HB20 hatchback led the tripling of sales in Brazil. Emerging markets helped Hyundai counter a slump in Europe, labor disputes in Korea and a weaker yen that’s giving Japanese carmakers an edge in the U.S.

“Today’s results were not bad, but seasonally the second-quarter has almost always been Hyundai’s strongest quarter,” Heo Pil Seok, chief executive officer at Midas International Asset Management Ltd., which oversees about $6.4 billion, said by phone. “With a lack of new models and nothing significant anticipated to drive growth, I don’t expect Hyundai’s shares to show strong performance in the remainder of the year.”

Operating profit, or sales minus the cost of goods sold and administrative expenses, fell 5.2 percent to 2.41 trillion won. That exceeded the 2.35 trillion won average analyst estimate compiled by Bloomberg. Revenue increased 5.7 percent to 23.2 trillion won, beating the 22.9 trillion won estimate.

Hyundai rose 0.5 percent to 224,500 won in Seoul trading, versus the 0.1 percent fall in the benchmark Kospi stock index. The stock has gained 2.8 percent this year.

Sales Forecast

The automaker cut its forecast for global industry vehicle sales this year by about 450,000 units to 79.4 million, led by shrinking demand in Europe amid its regional recession, according to Chief Financial Officer Lee Won Hee, who spoke in a conference call today.

In the U.S., an exit from the Federal Reserve’s quantitative easing program will have an adverse effect on recovering auto demand, Lee said.

Hyundai expects to exceed its annual target in Europe with the sale of the new i10 compact, and demand for its cars to rise in the U.S. as industry demand for sedans grows, he said. Competition with Japanese automakers will intensify as they step up incentives and discounts given the weaker yen, Hyundai said in its statement today.

The won has strengthened 5.7 percent against the yen in the past six months, as Japanese Prime Minister Shinzo Abe pursued monetary easing policies that helped the yen weaken from post-war highs.

U.S. Incentives

Hyundai’s incentives surged 42 percent in the U.S. last quarter on the weaker yen and lack of new models. This compares with a 5 percent decline in Toyota’s incentives and the market average of a 5 percent increase, according to Autodata.

Hyundai’s sales rose 1.9 percent in the U.S. market last quarter, trailing the industry average of 8.5 percent growth. Its deliveries slumped 7.2 percent in Europe in the same period.

The HB20 hatchback, specifically designed for the Brazilian market, has won seven awards in the country since it was unveiled in September, including Car of the Year by auto magazine Autoesporte and 10 other media, according to Hyundai.

Deliveries in Brazil surged more than threefold to 49,156 units last quarter.

Labor Talks

Hyundai union workers in South Korea, the company’s largest manufacturing base, boycotted weekend overtime for 13 weeks, costing the company an estimated 1.7 trillion won in lost production, according to the company. Sales in the country fell

0.8 percent, partly also because of reduced working hours from a new shift system.

Hyundai hasn’t made progress in wage talks with its union as of the 17th round of talks yesterday, according to a statement on the union’s website. The union has threatened to go on strike after the official summer vacation ends next week if the company doesn’t agree to the union’s terms, according to the statement.

-- Editors: Chua Kong Ho, Dave McCombs

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