Porsche Earnings: Solid Revenue Growth but Higher Costs Slightly Ding Margin

Narrow-moat-rated Porsche P911 reported third-quarter earnings per share of EUR 1.29, EUR 0.09 less than the EUR 1.38 FactSet consensus estimate and down EUR 0.01 from proforma EUR 1.30 last year. Consolidated revenue rose 10% to EUR 9.7 billion from EUR 8.8 billion a year ago despite a slight 0.4% decline in unit volume to 75,368 from 75,652 in the prior year. Favorable pricing and mix were partially offset by currency. Revenue was slightly better than the consensus by 1%. Due to the time value of money since our last update, we raised our fair value estimate by EUR 2 to EUR 92. The 3-star-rated shares of Porsche currently trade at 6% discount to our new fair value.

Operating profit of EUR 1.649 billion was up 5% from EUR 1.568 billion reported for the third quarter of 2022. However, operating margin contracted 0.8 percentage points to 17.0% from 17.8% last year due to supply chain disruptions, inflationary cost pressures, higher spending on increased sales activities, increased motorsport engagement, and the impact of higher interest rates on financial services profitability. Owing to improved working capital as the new Cayenne made its way to dealer lots, third-quarter automotive free cash flow increased to EUR 1.2 billion from EUR 0.9 billion a year ago.

Despite dinged third-quarter margins, management maintained 2023 full-year guidance for revenue of EUR 40.0 billion-EUR 42.0 billion and an operating profit margin of 17%-19% with the launch of the new Cayenne underway and an expectation for a generally stronger second half. We maintained our 2023 estimates with revenue at EUR 41.0 billion and an operating profit of EUR 7.4 billion with an 18% margin. Our modeling assumptions represent the midpoint of management guidance due to continuing industry headwinds like the chip shortage, supply chain disruptions, inflationary cost pressures, rising interest rates, and softening economic conditions in major automotive markets.