Volkswagen profit tops forecast, but takes another dieselgate hit

Wed Jul 20, 2016 8:04am EDT
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By Andreas Cremer

FRANKFURT (Reuters) - Volkswagen (VOWG_p.DE: Quote) said cost cutting and rising European car sales helped it to beat first-half underlying profit forecasts, though it set aside another 2.2 billion euros ($2.4 billion) to cover costs related to its "dieselgate" emissions scandal.

Europe's biggest carmaker is battling to restore its reputation after admitting in September to fitting illegal software that could deactivate emissions controls on around 11 million diesel vehicles worldwide.

Some analysts said the stronger-than-expected results for the six months ended June were a sign a recovery might be taking hold, and Volkswagen (VW) shares jumped more than 5 percent after the news on Wednesday.

"Today’s press release is the start of a move in the right direction," said Barclays analysts, who have an "overweight" rating on VW shares.

However, the German company also said it was taking another one-off hit of 2.2 billion euros, "mainly related to further legal risks predominantly arising in North America."

VW has already set aside about $18 billion to cover the cost of its emissions cheating scandal, mainly vehicle refits and a settlement with U.S. authorities, and analysts had expected lawsuits and potential regulatory fines to increase that number.

Three U.S. states announced on Tuesday civil lawsuits against VW claiming senior executives covered up evidence that the carmaker had cheated emissions tests for years.

DZ Bank kept its "sell" rating on VW shares on Wednesday, citing continued uncertainty surrounding the company, despite first-half results which it said signaled the second quarter performance was the company's best on record.   Continued...

A Volkswagen sign is seen on a wheel of a car presented during an auto show in Beijing April 25, 2016. REUTERS/Damir Sagolj/File Photo