Hyundai Motor profit falls to $1.55 billion

Hyundai Motor Co.’s (005380.SE) second-quarter net profit dropped at a slower pace than expected, helped by the weak local currency, which lifted gains repatriated from overseas.

Net profit in the April-June period was 1.76 trillion won ($1.55 billion), down 1.5% from 1.79 trillion won a year earlier. The result was better than market expectations for net profit of 1.67 trillion won.

“The won’s weakness against the dollar and improved foreign-exchange rates versus emerging-market currencies such as the ruble, real and rupee boosted Hyundai’s repatriated earnings higher than expected,” said HI Investment & Securities analyst Koh Tae-bong.

On the operating level, the company eked out a small increase, ending a streak of declines for the past eight quarters.

Hyundai’s second-quarter operating profit rose 0.6% to 1.76 trillion won from 1.75 trillion won. Revenue gained 8.1% to 24.68 trillion won from 22.82 trillion won.

But analysts forecast a difficult third quarter for Hyundai as demand weakens in its major global markets. In South Korea, Hyundai’s most profitable market, a “demand cliff” is widely expected for auto makers with the expiry of tax cuts on new car purchases at the end of June.

Sales in China, its biggest market, improved but the company expects a tough second-half there, dimming the prospects for its full-year target of 5.01 million cars globally.

The better-than-expected performance comes at a time when its local production is being disrupted by labor strife.

Last week, Hyundai’s unionized workers went on a strike to demand higher wages for a fifth straight year, halting output at its main plants for several days.

The South Korean company shipped a record number of automobiles in the U.S., its second biggest market, as it spent more to push out less popular sedans.

Hyundai’s flagship Sonata and compact Elantra sedans have fallen out of favor with consumers who prefer larger sport-utility vehicles and light trucks that have become cheaper to drive as fuel prices fall.

Hyundai said it plans to increase the production of SUVs, such as the Tucson crossover, at plants in China and the U.S. to meet growing demand for off-road vehicles.

Hyundai has made some progress recently in catching up with consumer tastes. Sales in China began to show signs of turning the corner early this year with the launch of the revamped Tucson, while government tax cuts buoyed sales of smaller cars. The Tucson, Hyundai’s flagship midsize SUV, and its larger cousin, the Santa Fe, also underpinned better sales in the U.S.

Source: MarketWatch