Hyundai Motor Returns to Earnings Growth on Rising SUV Sales

(Bloomberg) -- Hyundai Motor Co. increased its operating profit for the first time in six quarters, helped by strong demand for new sport utility vehicles such as the Palisade and decreasing incentive spending in the U.S.

  • First-quarter operating profit climbed to 824.9 billion won ($718 million), compared with the average analyst estimate of 777.3 billion won.

Key Insights

  • After defeating activist Elliott Management Corp. in a proxy fight last month, Hyundai’s chairman-in-waiting Euisun Chung is trying to convince investors that his planned push into new models including electric cars will translate into long-term earnings growth.
  • Hyundai’s full SUV lineup -- from large to subcompact vehicles -- is finally hitting markets worldwide in 2019 after years of requests from shareholders for the company to lessen its reliance on sedans. The large Palisade SUV has met strong demand in South Korea and will go on sale in the U.S. in the third quarter, taking on Ford Motor Co.’s Explorer and Toyota Motor Corp.’s Highlander.
  • The company, under pressure to restructure its Chinese operations due to low profitability and stricter environmental regulations, said it is suspending its oldest plant in the country. Beijing Hyundai’s first-quarter auto sales fell by 18 percent to the lowest level since 2009, hit by slumping demand in the world’s largest auto market.

Market Reaction

  • Shares of Hyundai rose 1.8 percent to 138,500 won in Seoul. The stock has gained 17 percent this year.

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  • Hyundai vows to continue improving its profitability this year, with new models including a compact SUV and a luxury Genesis SUV set to be released in 2019.
  • With Palisade demand exceeding expectations in South Korea, Hyundai is considering expanding production as it prepares to start exporting the model to the U.S.
  • Regarding U.S. authorities’ ongoing probes on Theta engines, Hyundai Senior Vice President Koo Zayong said it’s difficult to estimate when the investigation will end, adding costs related to quality issues could continue to rise due to tougher regulations.
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  • Company’s presentation

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