SEOUL (Reuters) - Hyundai Motor Co (005380.KS) said challenges are expected to persist in the U.S. market, where its sales have already been battered by a lack of SUVs, after earlier reporting its worst annual earnings in seven years.
The South Korean firm, which has not seen its yearly income rise for five years now, is battling a lot of headwinds - a long product cycle, heavy reliance on sedan sales in China and the United States as well as a firmer local currency that is eating into its profits repatriated from overseas.
And any recovery will likely be slow as indicated by Hyundai CFO Choi Byung-chul’s comment that “the U.S. sales conditions are expected to be challenging, as a result of persistent weakness in demand and rising competition”.
In the United States, Hyundai’s third-biggest market after China and South Korea, inventory levels rose to four months at the end of last year.
Hyundai and affiliate Kia Motors (000270.KS), together the world’s No.5 automaker, missed their global sales target for a third year in 2017 as business in China also came under pressure from a chill between Beijing and Seoul over South Korea’s deployment of a U.S. anti-missile system.
Hyundai is looking to boost China sales by 15 percent to 900,000 vehicles this year, as relations between the countries thaw, and revive U.S. sales momentum by launching models fit for the market, the CFO said at an earnings briefing on Thursday.
But according to Ko Tae-bong, an analyst at Hi Investment & Securities: “The earnings outlook for the first half is tough, as Hyundai is expected to focus on reducing its high inventory ahead of new model launches in the U.S. later this year.”
Hyundai plans to launch its redesigned Santa Fe this year and seven other SUVs by 2020 to boost U.S. sales, which fell 12 percent in 2017 despite a 25 percent spike in incentives.
But currency worries weigh.
A firm won KRW=KFTC, which rose 7 percent against the dollar in the fourth quarter and hit a 3-1/2 year high this month, hurts the price competitiveness of South Korean exports.
The yen’s weakness puts Japanese rivals like Toyota Motor (7203.T) at an advantage in overseas markets.
The stronger won was one of the factors that dragged Hyundai’s net income for the quarter ended December.
It reported a net profit of 1.03 trillion won ($971.61 million) for the period, up 3 percent and in line with the 1.09 trillion won consensus estimate, Thomson Reuters data shows.
While this was the first gain in quarterly profit in four years, analysts had been expecting it given a low base for comparison from a year ago.
Its net profit for the year was 4 trillion won.
Hyundai shares fell as much as 1.6 percent after results were announced, but recovered later and ended up 1.3 percent. The wider market .KS11 was up about 1 percent.
Reporting by Hyunjoo Jin; Additional reporting by Dahee Kim; Editing by Himani Sarkar