Hyundai Motor operating profit jumped 21.1%

Operating profit of Hyundai Motor jumped 21.1% to 824.9 billion won (US$717.3 million) in the first quarter from the same period last year, as a drop in sales was offset by an  improved average sales price thanks to increased sales of large new cars with higher margins such as Palisade SUV and flagship sedan Genesis G90.

This is a better result than the market consensus of 770 billion won.

The company’s operating profit margin rose 3.4%, 0.4 percentage points above the year-earlier increase. Its revenue increased 6.9% to 23.987 trillion won with net profit rising 30.4% to 953.8 billion won.

However, its car sales decreased by 2.7% to 1,021,377 units due to sluggish sales in primary markets such as the United States and China. Overseas sales fell 4.9% to 837,420 units, but domestic sales rose 8.7% to 183,957 units.

The company announced the results Monday in a conference call.

Genesis and Palisade

The face-lifted Genesis G90 launched in November last year sold 2,374 units last month, marking a 139.3% year-on-year increase in sales. Palisade has also continued its brisk sales, with 5,769 units sold in March following 6,377 units in February.

A Hyundai official said: “The business environment continues to be difficult, with the prolonged low growth of the global economy and rising concerns over trade conflicts due to the strengthening protectionism in the US and other major countries.” Still, he said, “the stable sales of new models such as the G90 and Palisade have led to improved product mix and profitability.”

Some are cautious about whether Hyundai Motor’s earnings will continue to improve as they believe that stable sales growth in major overseas markets such as the US and China are necessary to support its performance.

Yim Eun-young, an industry analyst at Samsung Securities, said: “The operating profit is positive because it is better than the 770 billion won expected by the market,” she said, however: “We have to wait and see whether the new car effect will continue to improve Hyundai’s earnings.”

China is key

Regarding Hyundai’s lackluster overseas performance, Yim said, “The drop in overseas sales seems to be largely due to China. Except for China, the global sales are going well as seen in other emerging markets such as India, Russia and Brazil. In the Chinese market, it seems difficult for Hyundai to improve its performance quickly. The weak performance in China comes from a combination of weak demand caused by the slowing economy and Hyundai’s losing edge in competitiveness.”

She added: “It takes time to launch a car that fits the Chinese market. It will take Hyundai at least two years.”

Restoring sales of the Genesis brand in the US market was also cited as a challenge for Hyundai.

“Sales of Genesis brands in the US have recently shown a slump. They sold less than 1,000 units a month,” Yim said. “As global demand is weakening, sales of luxury cars and large cars with higher margin can have a significant impact on Hyundai Motor’s business performance.”

Car sales fell 6.7% in the global market in the first quarter, while sales in the Chinese market fell 10.5%.

A Hyundai Motor spokesperson said that the decrease in sales in the first quarter was due to a conservative set of business plans, and the company sought better operating margin – as in the case of reducing sales of rental cars in the US – rather than an increase in sales

“In the second half of this year, Palisade will be released in the US and IX-25, a small size SUV for the Chinese market will also be launched. With these models, our overseas market sales are expected to improve,” the spokesperson said. “And new platforms adopted for new cars will have more sharing of standard and common parts among cars. This will help higher operating profit.”

Hyundai Motor has set a goal to achieve a 4% operating profit margin this year.