Hyundai Motor second-quarter profit drops on U.S. slump, slow China recovery

SEOUL (Reuters) - Hyundai Motor Co on Thursday reported a 14 percent drop in quarterly net profit, missing estimates by a substantial margin, as the South Korean automaker continued to struggle with lacklustre sales in the United States and China.

Hyundai also flagged concern about the United States’ pursuit of tariffs on auto imports creating market uncertainty, as the automaker tries to revive U.S. sales with a new Santa Fe sport utility vehicle (SUV) - built in the U.S. and other imported models.

“We will continue efforts to minimize tariffs risk with the government and other stakeholders,” Chief Financial Officer Choi Byung-chul said on a conference call, suggesting possible measures such as expanding U.S. SUV production.

He also said a prolonged U.S. trade war with China could reduce vehicle demand and intensify competition in China.

The U.S. has been engaged in tit-for-tat tariffs with China, and in May launched an investigation into whether imported cars threatened national security. In the latest trade development, President Donald Trump on Wednesday said the U.S. would refrain from tariffs with the European Union pending talks.

The U.S. market has been a source of frustration for Hyundai since the South Korean automaker was slow to respond to a consumer shift toward SUVs. It was forced to cut production at its factory in the U.S. and export fewer vehicles to the country over April-June to reduce inventories of less-favoured sedans.

For the second quarter, Hyundai booked net profit of 701 billion won ($626 million), versus the 972 billion won average of 17 analyst estimates compiled by Thomson Reuters I/B/E/S. Operating profit fell 29 percent while sales rose 2 percent.

Shares in Hyundai - which with affiliate Kia Motors Corp is the world’s fifth-biggest automaker - closed down 0.4 percent in a wider market that rose 0.7 percent.

Hyundai’s stock has fallen 17 percent so far this year, lagging the market and becoming one of the worst performers in the global auto sector.

SLOW CHINA RECOVERY

Hyundai also said retail sales in China, its biggest market, fell 3 percent in January-June versus the same period a year prior. The automaker has been trying to revive sales in the country since South Korean goods fell out of favour during a diplomatic fallout over Seoul’s military defences.

It launched a Chinese version of its small Kona SUV after diplomatic ties normalised, but recovery has been tepid with Hyundai’s market share dropping this year. On Wednesday, the automaker replaced its Chinese chief after less than one year.

“China difficulties will continue in the second half, with the rise of Chinese rivals and Hyundai’s weak brand positioning,” said analyst Cho Soo-hong at NH Investment & Securities.

Earnings are likely to improve from a low base last year, but the rebound will be slow as persistent China weakness will offset any U.S. recovery, Cho said.

($1 = 1,119.6900 won)