October 26, 2017 / 5:10 AM / 2 years ago

Hyundai Motor posts smaller profit drop, but sees tough U.S. market

SEOUL (Reuters) - Hyundai Motor (005380.KS) posted a smaller-than-expected drop in quarterly profit, but cautioned of continued weak demand and rising competition in the United States, indicating the South Korean firm was still far from being out of the woods.

Run by 79-year-old founding family member Chung Mong-koo, Hyundai Motor has not posted a year-on-year rise in quarterly profit since 2014 due to its delayed response to the burgeoning demand for sport utility vehicles (SUVs) in the United States.

And compounding its problems has been China’s backlash over Seoul’s decision to deploy an anti-missile system, the U.S. Terminal High Altitude Area Defence, that has resulted in lower demand for Korean cars in the world’s top auto market.

While the automaker has plans to bring more SUVs in the United States and China, analysts say continued weakness in the top markets has already put Hyundai and its affiliate Kia Motors (000270.KS) on track to miss their global sales target for a third straight year in 2017.

Hyundai, which together with Kia is the world’s fifth-largest automaker, on Thursday reported a net profit of 852 billion won ($758.21 million) for the third quarter ended September, down from 1.06 trillion won a year ago.

The net profit, which reflect losses at Kia stemming from a wage dispute, came in above an average analysts’ forecast of 849 billion won. Hyundai shares rose more than 7 percent to their highest since July after the announcement.

“There is a relief earnings were not worse than expected, said Kim Sung-soo, a fund manger at Seoul-based LS Asset Management. “But U.S. and China are the most important markets, and I don’t have expectations of major sales recovery in those markets for the time being.”


Hyundai’s China sales fell 30 percent from January to September, lagging rivals such as Honda Motor (7267.T), Toyota Motor (7203.T) and General Motors (GM.N) that saw higher sales.

To help boost China sales and in keeping with demand trends, the company plans to increase the number of SUVs it offers to 7 from the current 4 by 2020.

In the United States too it wants to offer new SUV models, including Kona and Santa Fe, while “reducing inventory through flexible manufacturing”, Hyundai CFO Choi Byung-chul said.

Its U.S. sales slid 13 percent over the first nine months, despite the automaker sharply boosting incentives. In the third quarter, Hyundai’s U.S. incentives rose 26 percent.

“The U.S. market is expected to be challenging because of continued weakness in demand and rising competition,” Choi said.

Asian rival Toyota has launched its newest-generation mid-sized sedan in the United States, going up against the facelifted Sonata offered by Hyundai.

Hyundai Motor recently replaced the heads of its China and U.S. operations in a bid to turn around its business.

FILE PHOTO - A Hyundai logo is seen outside a factory in Beijing, China April 8, 2017. REUTERS/Muyu Xu/File Photo

Hyundai and Kia, known for the top-down management style of Chairman Chung Mong-koo, are now looking to give more autonomy to regional operations so they can quickly respond to market changes while addressing slowing demand and rising competition.

Hyundai shares closed up 7.4 percent, their biggest daily percentage gain since March 21, outstripping the wider market .KS11 that was down 0.5 percent.

Analysts said Hyundai shares were also supported by media reports that China and South Korea were working to resolve the diplomatic standoff.

Reporting by Hyunjoo Jin; Editing by Himani Sarkar

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