SEOUL (Reuters) - Hyundai Motor posted its smallest quarterly net profit in five years, falling dismally short of estimates, and warned the second half of 2017 would be challenging as political headwinds hit sales in China and slow U.S. demand continues.
The South Korean firm - which together with affiliate Kia Motors is the world’s No.5 automaker - has been betting earnings will recover gradually, but its plans have ground to a halt with China’s backlash over Seoul’s decision to deploy an anti-missile system, the U.S. Terminal High Altitude Area Defence (THAAD), showing no signs of abating.
Slower demand in the United States, the automaker’s No.2 market after China, has also been taking a toll, a trend the South Korean firm cautioned will persist through the rest of the year with its mainstay Sonata sedans losing ground in a market powered by sport utility vehicles (SUVs).
“The challenging business environment is expected to persist in the second half because of negative external factors such as a slowdown in U.S. demand and China’s THAAD issue,” Hyundai CFO Choi Byung-chul said at an earnings conference call.
Earlier on Wednesday, Hyundai Motor said its second-quarter net profit halved from a year ago to 817 billion won ($729.14 million) - its 14th straight year-on-year fall and the smallest since the first quarter of 2012. Analysts on average had expected 1.35 trillion won.
Its operating profit came in at 1.34 trillion won and sales at 24.31 trillion won for the period.
The company is aiming to shore up its global sales through new models likes its Kona small SUV and Genesis G70 sports sedan, the CFO said at the briefing.
Hyundai Motor’s retail sales in China, the world’s biggest auto market, slumped 29 percent in the first half of 2017.
Its weak brand image has also put Hyundai at a disadvantage versus local and global rivals such as Honda Motor, Toyota Motor and General Motors, which all saw higher China sales for last month. GM, in its earnings call on Tuesday, said it set second-quarter sales record in China.
Hyundai Motor plans to open a new factory in Chongqing in late August, hoping to offset some of its sales slide by tapping into the southwestern region, even as its other factories in the eastern region are underutilized.
In the United States, Hyundai Motor’s sales over January-June fell 7.4 percent, the second biggest drop after affiliate Kia Motors. The slump came despite the automaker sharply boosting incentives to buoy sales.
Its U.S. incentives jumped 32 percent to an average of $2,800 per vehicle in the first half, from a year earlier.
It is set to face more pressure as competition rises in the United States, where Asian rivals such as Honda and Toyota will be launching their newest-generation mid-sized sedans this month, going up against the facelifted Sonata to be offered by Hyundai Motor even as sedan sales weaken worldwide.
Hyundai Motor shares trimmed earlier gains after the earnings announcement, ending up 1.4 percent versus the wider market that was down 0.2 percent.
Reporting by Hyunjoo Jin, additional reporting by Clara Ferreira Marques; Editing by Himani Sarkar