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By Michael Steen
FRANKFURT, July 30 (Reuters) - Volkswagen AG , Europe's biggest carmaker, posted stronger than expected second-quarter earnings on Tuesday but watered down its profit outlook for the whole year.
Despite weak demand in its key markets of Europe, the United States and South America, the firm said second-quarter pre-tax profits rose 13.5 percent on a year ago to 1.266 billion euros ($1.24 billion).
For the first half of the year its pre-tax profit was up 4.1 percent at 2.263 billion euros.
Auto analyst Lars Ziehn at Deutsche Bank said the second-quarter figures looked good. "For the whole year, however, it looks like a small profit warning," he added.
VW said it expected a pre-tax profit of "around four billion euros" for the full year. It had previously said it would match last year's record 4.4 billion euros.
The company also said it expected unit sales of just under five million units in 2002, in line with comments from senior executives that it might not reach last year's five million.
The results for the three months ending June 30 beat market expectations. A Reuters poll of 22 analysts had predicted an eight percent slide in pre-tax profit to 1.028 billion euros.
Sales also beat expectations. VW said second-quarter sales were one percent lower than a year ago at 22.764 billion euros, versus analysts' forecasts of around 22.617 billion.
WARNING EXPECTED
Many analysts had been anticipating the group would reduce its guidance for the full year amid weak global auto markets.
Shares in Volkswagen were trading flat at 44.68 euros by 0733 GMT, outperforming a weaker DJ Stoxx European auto sector which was down one percent. The stock has underperformed the European sector by about eight percent this year.
"If this is (a profit warning), we are not particularly worried because it is not severe," said analyst Xavier Gunner at UBS Warburg. "We knew that the second half of the year was always going to be difficult."
New Chief Executive Bernd Pischetsrieder had repeatedly said the firm would match last year's record profit, but the company faces a challenging period as some of its best-selling cars, such as the Golf, begin to show their age.
Rivals such as France's PSA Peugeot Citroen have newer cars on the market in a segment hit by slowing sales.
"The question we are asking is about the second half," said industry analyst Patrick Juchemich at Sal. Oppenheim. "You have to look at risk in areas like South America."
Pischetsrieder is seeking to re-align the company's brands, which include SEAT, Skoda, and Audi, to stop them from competing against each other. (WIth additional reporting by Marius Bosch, Madeline Chambers and Jeff Mason)