Hyundai Profit Misses Estimates as Won Threatens Exporters

Apr 24, 2014 2:29 am ET

(Updates with comments from CFO in fourth paragraph.)

April 24 (Bloomberg) -- Hyundai Motor Co. reported profit that missed analysts’ estimates, sending shares of South Korea’s largest carmaker lower and illustrating how the won’s climb is eroding earnings for the nation’s exporters.

Net income dropped 0.9 percent to 1.93 trillion won ($1.9 billion) in the first quarter, from 1.95 trillion won a year earlier, South Korea’s largest carmaker said in a statement today. Profit missed the 2.12 trillion won average of 16 analyst estimates compiled by Bloomberg.

Asia’s fastest-appreciating currency in the past year -- the won’s trading near levels not seen since 2008 -- is draining profits from a country where exports account for most of economic output. A pickup in domestic consumption and a hit model, the new 46.6 million won Genesis that was introduced in November, helped bring some relief as it faces intensifying competition from Toyota Motor Corp. and Volkswagen AG in overseas markets.

“The company’s profits should improve from the second quarter onward, helped by sales of the new Genesis and Sonata models in the U.S.,” Lee Won Hee, the company’s chief financial officer, said today in a conference call. “Still, the won is expected to continue strengthening against the dollar.”

Hyundai shares fell 1.2 percent to 242,000 won at the close of Seoul trading after falling as much as 2.7 percent after the company reported results.

Operating profit, or sales minus the costs of goods sold and administrative expenses, rose 3.7 percent to 1.94 trillion won. That compares with the 2.04 trillion won average analyst estimate compiled by Bloomberg.

Rising Won

The won has appreciated in the past year against every major currency, except for the British pound, gaining about 8 percent versus the dollar, hampering Korean exporters’ ability to compete in global markets.

For Hyundai, competition is getting tougher in markets such as China, where it ranks fourth in terms of sales among foreign automakers. Its 8.8 percent growth last quarter lagged behind the industrywide expansion of 10 percent, data compiled by Bloomberg shows. Among the competition is Ford Motor Co., which saw its China deliveries surge 45 percent in the first quarter.

The company expects China’s industrywide demand to increase by at least 11 percent this year, according to Lee. Hyundai is building the fourth plant in the country to meet rising demand, he said.

One bright spot for Hyundai’s been in Korea, where first- quarter gross domestic product expanded 3.9 percent from a year earlier, the fastest pace in three years. It was also helped by the introduction of the second-generation Genesis, the company’s second-most expensive sedan. Premium models typically carry higher profit margins, said Lee Sang Hyun, an analyst at NH Investment & Securities Co.

New Sonata

Korea accounted for 66 percent of the company’s global premium sedan sales in 2013 and 44 percent of total revenue, according to company figures and data compiled by Bloomberg.

Last month, Hyundai unveiled a revamped Sonata, of which Hyundai targets to sell 228,000 units this year. That missed the 245,000-unit average of three analysts’ estimates in a Bloomberg survey.

The Sonata, Hyundai’s most important new model for this year, made its U.S. appearance at the New York International Auto Show this month.

In the U.S., Hyundai’s second-biggest market by volume, the automaker’s sales fell 2.6 percent in the quarter. Hyundai’s incentives in the U.S. surged 51 percent in the three months ended March, compared with a 11 percent rise at Toyota and the industrywide average of a 7.4 percent increase, according to Autodata Corp.

--With assistance from Eunkyung Seo in Seoul.