Volkswagen AG (ADR) (OTCMKTS:VLKAY) Returns To Profitability

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Volkswagen AG (ADR) (OTCMKTS:VLKAY)

Volkswagen AG (ADR) (OTCMKTS:VLKAY) delivered better than expected first quarter earnings, helped by growing demand for Audi and Porsche models. The automaker says its operating profit for the first three months fell 5.9% to €3.1 billion, against Wall Street forecast of a profit of €2.8 billion.

Stellar Q1 Results

Sales revenue was down by 3.4% to €50.96 billion. Net liquidity associated with the automotive division stood at €26 billion as of the end of March, up by €1.4 billion as of the end of 2015.

If first quarter earnings are anything to go by, then Volkswagenis on a recovery path. A profit of €73 million came as a surprise given that the company registered a loss in the previous quarter. However, the profit was still low, compared to a €514 million profit posted for the same quarter last year.

Audi and Porsche’s sales helped propel Volkswagen to the earnings beat as demand for the two models remain high in the market. Growing demand in Western Europe and Asia Pacific helped offset weakness in South America and Eastern Europe. Sales in China were up by 6.4% thanks to the company’s incentive program that it is using to offset the threat of competition.

Recovery Path

The better than expected results for the first quarter come on the back of record losses for full year 2015. It now appears Volkswagen has absorbed a good chunk of the financial pain emanating from the emission scandal. The setting aside of €16.2 billion to cover affected car refits and settlements with US authorities marks the first phase towards full recovery.

Cost cuts have helped Volkswagen stay afloat as it continues to battle the effects of the emission scandal. Amidst the spending cuts, the automaker is also under pressure from activist investor TCI to speed up the restructuring efforts. The German automaker has also started working on a new business culture that it says will help improve accountability in the firm.

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