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Analysts Applaud Volkswagen's New Full-Year Target

Europe's biggest car maker reported second-quarter figures that beat expectations, but revised down its full-year profit expectations. Analysts welcomed the move, saying it could only boost confidence in the group.

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Volkswagen AG purring ahead on the right road

Volkswagen AG on Tuesday revised down its full-year profit outlook – and was rewarded by the markets and applauded by analysts.

In Frankfurt, shares in Europe's biggest car maker closed up 5.15 percent at 46.95 euro in a slightly friendly market where several other blue chips lost ground. Arndt Ellinghorst, automobiles analyst at WestLB, described the profit warning as "the right thing to do". He said it had boosted confidence in the group's management.

"This is just what the market wanted to see", said Christian Breitsprecher at Deutsche Bank. Volkswagen said it expected a pretax profit of "around 4 billion euro" for the full year, in a move that represents the abandonment of previous forecasts that it would match last year's record 4.4 billion euro.

To soften the blow, the car maker unveiled first-half results that beat expectations. The company said second-quarter pretax profits had risen 13.5 percent on the year to 1.266 billion euro. This left its first-half result at 2.26 billion euro, down 4.4 percent on the year.

"The results are better than expected", said Georg Stürzer at HVB Group. He said the Wolfsburg-based autos giant had done particularly well to raise its returns in its operating business. The 13.5 percent earnings growth seen in the second quarter had been won at a time when sales revenue had risen just 1 percent to 227 billion euro.

At the start of the year, the group had said it expected an economic recovery in the second half, but it said it had since become clear that this expectation would not be borne out.

"An improvement is highly unlikely ", said Chief Executive Bernd Pischetsrieder. But he stressed that the new guidance was still conservative. Globally, car sales have fallen on all important markets, and this development has hit Volkswagen hard. It is also one of the European companies which has been most affected by the downturn in the key markets of Latin America.

Its first-half unit sales on the Brazilian market were down 17 percent on the year. Worse still has been the impact on truck maker Scania, in which VW holds a sizeable share. The Swedish company's first-half orders from Latin America were down 58 percent on the year.

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