Volkswagen Reports Mixed Q4 Results

No-moat Volkswagen VOW reported fourth-quarter earnings per share before special items of EUR 2.79, well below the EUR 8.38 FactSet consensus and down from the EUR 9.44 reported last year. We surmise the shortfall was attributable to continuing operating disruptions from the chip shortage and logistics, higher raw material costs, increased energy costs, other inflationary cost pressures, and lower financial services profitability on increased interest rates and higher loss provisions. Even so, consolidated revenue jumped 20% to EUR 76.2 billion from EUR 63.6 billion a year ago, beating the consensus by 2%, on strong pricing and mix. Consolidated deliveries increased 19% to 1.5 million versus 1.2 million last year when the chip crunch was at its worst.

Fourth-quarter group adjusted EBIT of EUR 5.1 billion declined 14% from EUR 5.9 billion last year while margin contracted 260 basis points to 6.6%. Improved results at Porsche, Seat, commercial van, and Traton were offset by Volkswagen brand, Skoda, and Audi, resulting in industrial adjusted EBIT of EUR 3.87 billion versus EUR 3.88 billion last year. Financial services adjusted EBIT dropped 39% to EUR 1.2 billion from EUR 2.0 billion a year ago.

Management 2023 guidance includes deliveries of about 9.5 million vehicles (2022: 6.1 million), consolidated revenue of EUR 307 billion-EUR 321 billion (2022: EUR 279 billion), and group adjusted EBIT margin of 7.5%-8.5% (2022: 8.1%). We maintained our volume estimate at 9.4 million but raised our 2023 consolidated revenue estimate to EUR 300 billion from EUR 288 billion on continued strong pricing. We tempered our margin assumption to 7.5% from 7.8% as high uncertainty from industry headwinds remains in 2023. Due to the time value of money, we raised our fair value estimate to EUR 336 from EUR 328. The 5-star-rated ordinary shares trade at a 50% discount while the preferred shares are more attractively valued at a 62% discount.