Hyundai Motor Q1 profit falls as sales incentives rise, currencies drag

Seoul: Hyundai Motor on Thursday posted its fifth consecutive drop in quarterly profit after South Korea’s biggest automaker boosted sales incentives in the United States and weaker overseas currencies put a drag on offshore revenue.

Hyundai Motor, which together with affiliate Kia Motors ranks fifth in global sales, said net profit eased 1 percent to 1.91 trillion won ($1.77 billion) in January-March from 1.93 trillion won a year earlier.

Though the result was ahead of the 1.7 trillion won average estimate of 15 analysts polled by Thomson Reuters I/B/E/S, another drop in profit will add to pressure on Hyundai to boost production of sport utility vehicles (SUVs) and trucks to capitalise on surging demand in the United States and China.

“We expect earnings to improve going forwards,” Hyundai said in a statement, citing the planned rollouts of its Tucson SUV overseas.

Hyundai and Kia raised their 2014 vehicle sales target late last year even as demand for their mainstay sedans stalled, bloating inventories and forcing incentives higher.

At the same time, the South Korean won strengthened against currencies in Russia, Brazil and Europe, eroding overseas earnings. More than 85 percent of Hyundai’s vehicle sales are booked outside its home turf.

Hyundai’s operating profit slid 18 percent to 1.59 trillion won, on revenue of 20.94 trillion won, down from 21.65 trillion a year earlier. Its shares were up 1.5 percent after the earnings announcement, while the broader index was 1.3 percent higher.

Missing SUV boom

Hyundai’s wholesale deliveries fell 4 percent to 1.18 million vehicles globally in the first quarter from a year ago.

The company has been criticised for failing to predict higher demand for SUVs, spurred in part by cheaper fuel in the United States and rising incomes in China.

While rivals cash in on the SUV boom, Hyundai has grappled with a lack of production capacity and new models.

The company outperformed the US market with 8 percent retail sales growth there in the first quarter, driven by its Genesis and Sonata sedans, but analysts said this was partly due to an almost 30 percent jump in incentives for dealers and consumers in Hyundai’s second-biggest market after China.

Hyundai hopes its Tucson SUV, which will go on sale in the United States, Europe and other markets in the second half of the year, will boost its share of the growing sports utility segment.

To lift capacity, it is building a fifth factory in China and is looking to build a new facility in the United States.

Reuters