By Michael Steen
FRANKFURT, Oct 25 (Reuters) - Europe's biggest carmaker, Volkswagen AG , is expected to post a 30 percent drop in quarterly earnings next week as demand for its best-selling Golf model shrinks ahead of a new replacement model next year. Struggling against weakness in its key markets, notably in its home country of Germany, VW is hoping it can stay on course before a series of major new launches, including the new Golf in the second half of next year, give it some extra impetus.
A Reuters survey of 22 analysts forecast third quarter pre-tax profit to slump to 952 million euros ($929.7 million) from 1.361 billion a year ago when VW reports on Wednesday. Revenues, by contrast, are expected to increase eight percent to 20.9 billion euros.
The company warned in July that it could no longer reach an earlier full-year profit target of matching last year's 4.4 billion euros and said it now expected to make "around four billion euros" this year.
The poll showed that at the nine month level, the consensus estimate among analysts is for the company to have made 3.239 billion euros -- 13 percent below the year-ago figure.
With Western European Golf registrations down about 11 percent in the year to September, analysts at investment bank JP Morgan cautioned that the end of the Golf's life cycle could threaten earnings into next year as well.
"Towards the end of a product's life cycle, VW tends to see far more pronounced declines compared to its peers, largely because of VW's relatively disciplined pricing policy," JP Morgan said in a research note. The bank rates VW 'neutral'.
The bank noted that while VW's dislike for offering discounts on ageing models was a sound long-term strategy, it could "create significant profit and loss volatility around product phase-out periods".
But the company has also been hit by sector-wide sales weakness in its key European, U.S. and South American markets. In September it revised its 2002 forecast for unit sales to a more precise 4.975 million vehicles from an earlier indication of just under five million.
Some analysts have said they see a risk to VW achieving even its revised full-year profit target.
"Vehicle markets have deteriorated further in the last quarter, so another adjustment does not seem inappropriate, nor do we think it need be damaging to the share price unless of a significant scale," said Schroder Salomon Smith Barney, which rates the stock 'outperform, high risk'.
Shares in VW have lost 28 percent of their value this year, underperforming the European automotive sector by 11.5 percent.