Hyundai's Q3 profit falls 7% to miss market consensus

Hyundai Motor posted operating profit of 3.58 trillion won, down 6.5 percent on year, to fall short 290 billion won short of market expectations.

A Hyundai Ioinq 5 N [HYUNDAI MOTOR]

Hyundai Motor recorded a weaker-than-expected operating profit of 3.58 trillion won ($2.6 billion) on Thursday, hit by costs linked to a warranty extension in North America along with increased salaries.

The operating profit during the July-September period was down 6.5 percent on year, lower than the market consensus of 3.87 trillion won compiled by market tracker FnGuide.

The automaker registered revenue of 42.93 trillion won, up 4.7 percent on year, the highest for a third quarter.

Its net profit dropped by 3 percent to 3.21 trillion won in the third quarter.

The Lambda II engine unit installed in 2013-2019 Grand Santa Fe or Santa Fe XL SUV models, sold in Korea as the Maxcruz, was subject to a pre-emptive warranty extension policy, costing the company a one-time expenditure of 320 billion won in contingent liability, according to Hyundai.

The completion of collective wage negotiations in July, which cost the company approximately 400 million won, also affected the operating profit.

"This is not a recall nor is it a safety-related liability," Lee Seung-jo, chief financial officer at Hyundai Motor, during a conference call Thursday.

Hyundai Motor's Grand Santa Fe at the 2013 Geneva Motor Show in Switzerland. [HYUNDAI MOTOR]

Hyundai attributed the warranty extension to the "characteristics of American customers that frequently tow using their SUVs," explaining that towing heavy objects requires "high RPMs and high power output," putting more pressure on the engine, which in turn consumes more engine oil.

"It is our fault for not taking into consideration our users' consumption patterns," the senior vice president said, adding that Hyundai worked with the U.S. Department of Transportation to extend the warranty to 15 years or 150,000 miles instead of issuing a recall.

The Lambda II is Hyundai Motor Group's V6 engine mounted in many of the vehicles produced by Hyundai Motor, Kia and Genesis. Hyundai's other non-SUV models equipped with the engine are not affected, according to the company.

The automaker sold 1.01 million vehicles in the July-September period, a decrease of 3.2 percent on year, while the local market experienced a 1.8 percent increase on year with 169,901 vehicles sold during the same period.

North American market sales also rose 9.3 percent on year following the popularity of the new Santa Fe SUV and the facelifted version of the Tuscon, but the European and Chinese markets suffered a 4.2 percent decrease in sales in the same period.

The global sales for so-called clean energy vehicles — which include hybrid vehicles, plug-in hybrid vehicles, electric vehicles and hydrogen fuel-cell electric vehicles — recorded a 19.5 percent increase on year at 201,849.

Sales of electric vehicles decreased from 66,000 last year to 61,000 due to a global slowdown in demand for EVs, but the total increase in hybrid sales has resulted in overall growth in sales of green energy vehicles.

The company sold 131,000 hybrid vehicles in the July-September period, accounting for 13 percent of the total sales and an increase of 4.5 percent on year.

The company's hybrid sales in the United States have increased by 71.3 percent on year, due to rising demand for the entire lineup of hybrid cars. SUV sales have also climbed by 4.7 percent in the same period.

"While we are not able to share the detailed profitability of hybrid vehicles, it is higher than our projection and some hybrid vehicles have higher profitability than internal combustion vehicles at a double-digit value," the company said.

Hyundai expects the hybrid sales trend to continue in the fourth quarter.

The Hyundai Motor Group Metaplant America, which started test production on Oct. 3, is currently in the phase of increasing production capacity. A price cut for Ioniq 5 EVs produced at the factory is currently under discussion, according to Hyundai.

Hyundai Motor shares closed at 228,500 won, down 5.2 percent from the previous session, on Thursday.

Updated, Oct. 24:Added information about the shortfall in the third quarter, details about the warranty extension and sales figures for the period.

BY CHO YONG-JUN [cho.yongjun1@joongang.co.kr]