VW Shares Surge After Surprisingly Strong Profit Update

July 20, 2016, 12:16 PM UTC
Volkswagen settlement in the USA
A Volkswagen car is seen in Boston, USA, 29 June 2016. U.S. District Judge Charles Breyer has scheduled a hearing to approve a proposed settlement between Volkswagen and consumer plaintiffs on Thursday, 30 June. Volkswagen agreed to spend billions to settle consumer lawsuits and government allegations. Photo by: Adam Glanzman/picture-alliance/dpa/AP Images
Adam Glanzman — AP

Volkswagen said on Wednesday its first-half operating profit beat expectations, helped by cost cutting at its core VW brand and rising European car sales, but announced another 2.2 billion euro ($2.4 billion) provision related to its emissions scandal.

Europe’s biggest carmaker said its operating profit for the six months ended June, excluding one-off items, rose 7 percent to 7.5 billion euros.

In an unscheduled update ahead of interim results on July 28, it said this was ahead of analysts’ expectations, although it did not say what those expectations were.

At 0800 ET, Volkswagen (VW) shares were up 5.9 percent at 122.35 euros.

Including the one-off items, however, VW said its operating profit dropped 22 percent to 5.3 billion euros.

VW admitted in September it installed illegal software that deactivated pollution controls on more than 11 million diesel vehicles worldwide, sparking the biggest business crisis in its history.

It has already set aside 16.2 billion euros to pay for technical fixes for cars that violate clean air standards, buybacks of vehicles and legal costs.

VW said an improvement in European car markets as well as the return of orders from large corporate fleets had bolstered earnings at its namesake brand.

The company said it still expected 2016 sales revenue to decline as much as 5 percent from 2015, and an operating return on sales of 5 to 6 percent.

The company’s news comes a day after three states–New York, Massachusetts and Maryland–unveiled new lawsuits against the company, a development that has undermined hopes that the company can draw a line under its U.S. litigation risks. The New York suit alleges that VW’s current CEO, Matthias Mueller, was aware of the problem of excess emissions as far back as 2006, although it doesn’t claim that he knew about VW’s solution to the problem–the use of illegal, so-called ‘defeat devices’.