VW raises sales goal as recovery gathers pace

BERLIN (Reuters) - Volkswagen raised its 2017 sales forecast on Thursday after cost cutting and higher margin new models at its namesake brand helped it to beat quarterly profit expectations.

Europe’s largest automaker said it now expected revenue to beat last year’s record 217 billion euros ($254 billion) by more than 4 percent, compared with up to 4 percent previously.

Earnings before interest and tax jumped to 4.55 billion euros ($5.34 billion) in the second quarter from 1.90 billion a year earlier, beating the average forecast of 4.49 billion euros in a Reuters poll of analysts.

Profits at its largest revenue generator - the long struggling VW brand - climbed 12 percent to 907 million euros, thanks to cost cuts, R&D and production improvements and the launch of several high-margin sport-utility vehicles.

Investors have said a turnaround at the VW brand, which has suffered from high production costs in Germany and excessive R&D spending, is key to reviving the group’s fortunes following a costly emissions test cheating scandal.

The brand’s quarterly operating profit margin also leapt to 4.4 percent from 2.9 percent a year ago, beating a 2020 target of at least 4 percent, though still lagging peers such as PSA Peugeot Citroen and Renault.

“I am firmly convinced that our financial footing is adequate to cope with the transformation in the automotive industry and topics of the future,” finance chief Frank Witter said, a day after Britain announced a ban the sale of new petrol and diesel cars from 2040 to reduce pollution.

In another sign that VW is on the mend, it did not announce any further provisions related to its cheating of U.S. diesel emissions tests. The group has to date set aside 22.6 billion euros to cover fines, compensation and vehicle refits.

VW’s recovery, however, has been clouded by news that European and German regulators are investigating allegations of decades-long collusion between VW and other German carmakers.

VW played down the controversy after a special supervisory board meeting on Wednesday, saying cooperation on technical issues was a common industry practice. It declined to comment on allegations of anti-competitive conduct.

VW shares were 1.3 percent lower at 134.85 euros at 0835 GMT, with German rivals Daimler and BMW down 0.7 percent and 1.1 percent respectively.

“VW results are in line with expectations. But auto shares will remain under pressure over the cartel allegations,” said NordLB analyst Frank Schwope who has a “buy” rating on VW stock.

“VW could face a single-digit billion-euro fine if the allegations turn out to be true,” he added.

The group stuck to its guidance for return on sales for 2017 of between 6 and 7 percent, after reaching 6.7 percent in 2016, and for sales volumes to moderately exceed year-ago levels.

Reporting by Andreas Cremer; Editing by Maria Sheahan and Mark Potter