FRANKFURT, Germany -- Sales and profit rebounded in the second quarter for the core Volkswagen brand, compared with a dismal first quarter, the company reported Thursday.
With a combination of cost-cutting and marketing, the German carmaker appears to have contained some of the damage to its image caused by the diesel engine scandal.
Although operating profit for the Volkswagen brand fell 12 percent in the quarter, compared with the same period a year earlier -- to about $889 million -- that was a drastic improvement over the first quarter, when the division barely broke even. Sales also improved.
Progress on cost-cutting, if it continues, would be reassuring to Volkswagen investors, who have seen a 25 percent drop in the share price since the company admitted in September that it had manipulated diesel vehicles to make exhaust emission levels seem lower than they were.
"Management needs to show more progress on the turnaround," said Arndt Ellinghorst, a London-based analyst for Evercore ISI. It would have been good to see more cuts in capital expenditures, he said.
Well before the deception, Volkswagen was making only a slim profit margin on cars with the Volkswagen brand because production costs were high compared with those at competitors such as Toyota. Most of the parent company's profit has been from its Audi and Porsche luxury brands.
The cost of the emissions deception has still been a burden on earnings. Net profit for the company as a whole fell by more than half to $1.3 billion in the second quarter. The decline was mostly the result of additional money that Volkswagen set aside to cover legal problems.
The carmaker said last week that it would subtract about $2.43 billion from operating profit to deal with legal issues. On Thursday, the company said the sum included the cost of recalling cars equipped with defective Takata airbags, as well as fines for Volkswagen's involvement in a scheme with other truck makers to fix prices.
"We produced a solid result in difficult conditions," Frank Witter, Volkswagen's chief financial officer, said in a statement. "But it will require continued hard work to absorb the significant impact from the diesel issue."
Volkswagen has been trying to revamp its biggest division since even before the emissions-cheating came to light last year, with success vital to ensure future growth as the cost of the emissions deception climbs. Complicating the effort to lift margins, the brand has had to spend more money to lure customers in the wake of the emissions cheating.
Chief Executive Officer Matthias Mueller is pushing the carmaker to pivot toward mobility services and electric vehicles, even as it streamlines its model lineup and tries to cut development costs.
"The second-quarter results are pretty good, but if you compare the VW brand margin to direct competitors, there's still quite a gap," said Sascha Gommel, a Frankfurt-based analyst with Commerzbank AG.
Information for this article was contributed by Christoph Rauwald of Bloomberg News.
Business on 07/29/2016