Volkswagen’s Revenue To Falter In Q2 2019?

Volkswagen AG (OTCMKTS: VWAGY), the German auto giant, is set to announce its Q2 2019 results on July 25, 2019, followed by a conference call with analysts. The market expects the company to report revenue close to $68.5 billion in Q2 2019, which would be a decrease of 5.9% y-o-y. The decrease is mainly expected due to the overall slowdown in the global market which will affect the company’s sales volume. Market expectation is for the company to report earnings of $6.80 per share in Q1 2019, lower than $7.67 per share in the year-ago period.

Volkswagen revenues were reported at $268.9 billion in 2018. This included 6 revenue streams:

• Volkswagen Passenger Vehicles: $103.8 billion in 2018 (38.6% of Total Revenues). This includes revenue from passenger vehicles sold under the Volkswagen brand.
• Audi: $57.7 billion in 2018 (21.5% of Total Revenues). This includes revenue from vehicles sold under the Audi, Lamborghini, and Ducati brands.
• Skoda: 16.8 billion in 2018 (6.3% of Total Revenues). This includes revenue from vehicles sold under the Skoda brand.
• Porsche and Bentley: $23.7 billion in 2018 (8.8% of Total Revenues). This includes revenue from vehicles sold under Porsche and Bentley brands.
• Commercial Vehicles: $27.2 billion in 2018 (10.1% of Total Revenues). This includes revenue from commercial vehicles sold under Scania and MAN brands.
• Financial Services: $39.6 billion in 2018 (14.8% of Total Revenues). This includes revenue from the financial services provided for purchasing or leasing vehicles of the company.

We have summarized our key expectations from the earnings announcement in our interactive dashboard – Volkswagen’s Earnings – Performance and 2019 Forecast. In addition, here is more Consumer Discretionary data.

Key Factors Affecting Earnings:

Revenue expected to fall further:

• Sales have been down for Volkswagen in the past few quarters as the global economy recorded weaker growth in fiscal year 2018 due to geopolitical tensions, turbulence in financial markets, and protectionist tendencies. In Q1 2019 the revenue fell by 5.2% y-o-y to $67.8 billion as the company’s sales volume fell y-o-y due to the slowdown in the global auto market.
• Volkswagen Passenger Vehicles segment contributes the most to Total Revenue. Trefis estimates in 2019 revenue will increase to around $108.1 billion as the average revenue per vehicle and sales volume will increase.
• Audi saw a small fall in revenue in 2018 as sales volume fell due to the slow global market. Trefis estimates in 2019 the segment will grow to around $58.7 billion as average revenue per vehicle will continue to grow.
• Financial Services division has seen a good growth in the past as Segment Assets increased at a good pace. Trefis estimates the growth to continue in 2019 and the segment to record a revenue of approximately $41.6 billion.

Trend in Expenses:

• As Cost of Sales is more than 80% of Total revenue across the quarters, Total Expenses also moves similar to Cost of Sales. In Q1 2019 the same trend continued as Cost of Sales was recorded at 80.5% of Total Revenue.
• Net Income Margin has been steadily increasing the past couple of years as the company recovers from the emission scandal.
  

Full Year Outlook:

• For the full year, we expect gross revenue to increase by 2.7% to $276 billion in 2019. The highest increase in revenue (absolute terms) is expected from the Audi segment and Financial Services segment.
• EBITDA margin is expected to fall slightly to around 21.4%.

Trefis has calculated Volkswagen’s Valuation at a price estimate of $15 per share for Volkswagen’s stock. The value is based on the expectation that the company is on the recovery path from the emission scandal amid a slowdown in the global market.

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