SEOUL (Reuters) – Hyundai Motor Co. (Reuters)005380.KSThird-quarter earnings fell a staggering two thirds on Thursday. He was hit by a $ 440 million one-time fee related to US callbacks and dropped his shares.
FILE PHOTO: A worker repairs the Hyundai logo on a vehicle at a Hyundai Motor plant in Asan, south of Seoul, February 9, 2012. REUTERS / Lee Jae-Won / File Photo
The South Korean automaker had to deal with the costs associated with US airbag and engine recalls. A US security group has called for an extension of the recall of the engines this month, indicating an increase in fire complaints.
Recalling headache has contributed to a number of problems for Hyundai, which has seen annual earnings declines for five years due to weak sales in the US and China, the world's top two automotive markets.
Quarterly net profit decreased to $ 269 billion ($ 236 million), the lowest level in more than seven years, and well below a SmartEstimate of $ 831 billion, according to the refining data.
Operating income decreased 76 percent, while revenue increased 1 percent to 24.4 trillion won.
Automotive stocks ended 6 percent, their lowest level since March 2010. At one point, they fell 12 percent.
"The one-time costs were too high and the question is whether the costs will be unique or will there be others," said Jung Yong-jin, an auto analyst with Shinhan Investment & Securities. He has not expected any meaningful recovery.
Hyundai's forecast earnings would rebound in the fourth quarter, supported by new SUVs but unspecified.
The one-time fee also covers the cost of new engine damage detection technologies used in existing and future models.
"Transportation authorities in the US and other countries are stricter and more detailed on quality issues than in the past," said Lee Hyang, a Hyundai quality manager, during a conference call with analysts.
"We continue the company-wide efforts to minimize additional quality issues in the future," he added.
Hyundai also said that sharp falls in the currencies of emerging markets such as Turkey and Russia weighed on earnings.
Hyundai had relied on his new Santa Fe SUV to turn around its flagging assets in the United States, where it had missed an SUV boom due to its heavy reliance on sedans.
However, retail sales in the US only increased by 1 percent in the third quarter. Turnover in China fell 6 percent, although relations between Seoul and Beijing had normalized last year, leading to diplomatic confrontation that had left behind the sale of South Korean goods.
The automaker said Santa Fe sales should rise gradually.
"The first reaction for the Santa Fe is positive," said Koo Zayong, a Hyundai manager, adding that the model will increase its factory's US capacity utilization in the fourth quarter to over 90 percent, compared to 86 percent in the second quarter becomes.
Hyundai is also bracing itself for a decision by the United States whether it will beat tariffs on imports of vehicles and vehicle parts.
South Korea has argued that it should receive tariff exemptions, saying that it has already made concessions in the auto sector after a bilateral deal was revised in the past month.
Reporting by Hyunjoo Jin; Additional coverage by Choi Hayoung and Yoo Choonsik; Letter from Miyoung Kim; Editing by Edwina Gibbs