Volkswagen reports ‘significantly’ higher-than-expected operating profit

Volkswagen posted an operating profit of €4.4bn for the first three months of the year, a “significantly” higher figure than expected that signals success at efforts to control costs.

The world’s largest carmaker said Tuesday that operating profit was up 28 per cent from a year ago, thanks to “improvements” in its core passenger Volkswagen brand, which accounts for half of revenue but has long suffered from thin margins.

The company cited “new model introductions, particularly the Tiguan, and a strong financial performance in the West European market.”

Shares jumped more than 3 per cent after the results.

VW will release its full quarterly results on May 3, but it released the main figure early because of disclosure rules regarding earnings that are significantly different than expectations.

Arndt Ellinghorst, analyst at Evercore ISI, called the results “very positive” and estimated that operating margins at the VW brand must be around 3.5 per cent — a full point higher than his own estimate.

Herbert Diess, chief executive of the VW brand since July 2015, has made it his mission to improve profitability. Last November Mr Diess and the Works Council agreed on a €3.7bn “future pact” to reduce headcount by 30,000 jobs globally by 2020, including 23,000 in Germany.

Since then he has been accused of, or praised for — depending on who you ask — implementing the plan quickly and firing temporary workers. In February, he stood before more than 10,000 VW employees and told them 2017 would be a strenuous year for the company as he tries to get costs under control.

The speech was met with booing and whistling, according to two people present. “It was a real spectacle,” said one, describing how some workers held picket signs and would holler at certain points in the speech.

The first-quarter results appear to show the cost-cutting plan is bearing fruit. Margins at the broader VW Group, which includes Porsche and Audi, were 8.4 per cent, according to Evercore’s calculation.

But VW, which is still recovering from the diesel-emissions scandal, remains conservative. It said it would hold its 2017 forecast of an operating margin between 6 and 7 per cent.