Volkswagen Adjusts Fiscal 2024 Outlook Amid Market Challenges
Volkswagen's Revised Outlook for Fiscal Year 2024
UBS has recently maintained its Sell rating on Volkswagen AG (VOW:GR) stocks, setting a price target of EUR 84.00. This reiteration follows the company's recent announcement that its financial outlook for fiscal year 2024 has been significantly downgraded.
Operating Profit and Revenue Expectations
The German automotive giant now anticipates an operating profit (OP) of approximately €18 billion. This figure falls short of market consensus estimates, which were around €21 billion. Furthermore, the operating profit margin is projected to drop to approximately 5.6%, down from the previous consensus of 6.5%.
Volume Guidance Adjustments
Volkswagen has revised its volume guidance to forecast a decline of 2.6% year-over-year, contrasting sharply with its earlier prediction of up to 3% growth. There is also a slight decrease expected in revenue, projected to barely remain flat compared to the previous year's figures, shifting from an expected growth range of 0-5%.
Challenges in Various Segments
This downward adjustment can be attributed to several challenges across different segments, including VW Passenger Cars and Light Commercial Vehicles (LCV), as well as lower expectations from the Financial Services arm. The latter is now forecasted to yield €3.2 billion, revised from an initial estimate of €4.0 billion.
Impact of Macroeconomic Conditions
Moreover, Volkswagen has indicated that the planned restructuring of its German operations is not encompassed within this updated forecast. The company has expressed concern that ongoing macroeconomic challenges present additional risks, particularly within its Brand Group Core.
Implications for 2025 and Competitor Landscape
This latest forecast adjustment suggests a roughly 15% reduction from previous consensus estimates. UBS emphasizes that the underlying business trends may pose similar considerations for Volkswagen's outlook in 2025.
In the context of the broader automotive sector, the adjustments made by Volkswagen should be viewed alongside similar outlook revisions from industry peers, including BMW and Mercedes-Benz. The potential for steeper declines, particularly in the Chinese market, remains a focal concern.
Financial Performance in China
Volkswagen's financial performance, especially in the rapidly evolving Chinese market, tends to be recorded below the operating profit line, barring contributions from Porsche, which is reflected as at-equity income.
Free Cash Flow Guidance Update
Additionally, the company has modified its free cash flow (FCF) guidance to approximately €2.0 billion, accounting for outflows related to mergers and acquisitions. This is a notable decrease from previous forecasts that ranged between €2.5 billion and €4.5 billion.
Conclusion on Volkswagen’s Positioning
This latest round of financial guidance updates from Volkswagen marks a shift towards a more cautious approach given the dynamic market conditions and internal challenges it faces. Stakeholders will be closely monitoring Volkswagen's strategies as it navigates through these uncertainties.
Frequently Asked Questions
What recent action did UBS take regarding Volkswagen's stock?
UBS reiterated its Sell rating on Volkswagen AG stock, maintaining a price target of EUR 84.00.
What is Volkswagen's updated operating profit forecast for FY24?
Volkswagen's operating profit is now expected to be approximately €18 billion, below consensus estimates.
How has Volkswagen's revenue guidance changed for FY24?
The company projects its revenue to barely remain flat year-over-year, a decline from earlier expectations of 0-5% growth.
What specific challenges is Volkswagen facing?
Challenges include a decline in operating performance across various segments and an unfavorable macroeconomic environment.
What is the free cash flow guidance update for Volkswagen?
Volkswagen now anticipates a free cash flow of around €2.0 billion, down from the previous forecast of €2.5-4.5 billion.
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