Hyundai Q2 misses estimates, shares trim gains

Enlarge Photo A South Korean walks past the logo of Hyundai Motor at its headquarters in Seoul...

Thu, Jul 24 11:24 AM

By Cheon Jong-woo

SEOUL (Reuters) - Hyundai Motor Co on Thursday posted a surprise fall in quarterly net profit as a weaker won boosted the cost of financing foreign currency debt, and missed operating profit forecasts on rising commodity costs.

After the results, shares in Hyundai erased part of their early gain to be up 2 percent to 73,700 won as of 0543 GMT, compared to a 2 percent gain in the wider market. Before the earnings, the shares had risen as much as 3.73 percent.

The world's No.5 car maker together with its affiliate Kia Motors Corp is set to post higher-full year profit in 2008 thanks to strong demand for its smaller cars, analysts said.

However, Hyundai faces a harder time in the second half due to rising commodity prices and slowing higher-margin sales at home, where the company controls about half the market.

"Hyundai's 2008 earnings should be better than last year. However, the company has a lot of homework to do in the second half as it looks difficult to offset higher commodity prices with the recent price hike decision," said Kevin Lee, an auto analyst at Goodmorning Shinhan Securities.

Earlier this month, the maker of the Sonata sedan cut its local sales target for 2008 by 6 percent, saying higher oil dampened consumer sentiment in Asia's fourth-largest economy.

It also increased prices by 2 percent to cope with higher raw material costs, particularly steel. Benchmark coil steel prices have risen about 60 percent so far this year.

April-June net profit fell to 546.9 billion won ($542 million) from 611.5 billion won a year earlier, missing a 632.2 billion won forecast by 11 analysts in a Reuters poll.

Hyundai posted a 663 billion won in operating profit during the April-June period, below a 694 billion won profit forecast.

That compared to a revised 623 billion won profit a year ago and 529 won profit in the first quarter of 2008.

Second-quarter sales rose 11.1 percent to 9.11 trillion won.

A softer won also helped Hyundai gain price competitiveness abroad, especially against Japanese rivals such as Toyota Motors Corp, which face a tougher time due to a stronger yen .

Hyundai's earnings come a day after European automakers posted surprisingly strong quarterly results and kept their annual targets despite analysts warning of a tough second half.

As companies have slashed costs, sales have fallen in major markets, where drivers are feeling the pinch of record fuel prices and rising interest rates amid a global financial crisis.

France's PSA Peugeot Citroen said its recurring operating income rose nearly a third, while Italy's Fiat beat forecasts with a 19.6 percent profit rise.

Hyundai's shares, valued at around $16.3 billion, dropped 10 percent in the second quarter, underperforming an 1.7 percent fall in the Seoul's benchmark KOSPI.

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