VW Says Higher Costs to Damp Profit After Missing Estimates

(Updated with Porsche, Suzuki in the last three paragraphs.)

July 28 (Reuters) - Volkswagen AG, the largest carmaker in Europe, said higher commodity prices and a stronger euro will damp earnings gains this year after reporting weaker than expected profit .

VW second quarter earnings before interest and taxes of 3.17 billion euros (4.55 billion dollars) has missed the average estimate of 3.26 billion euros from 14 analysts surveyed by Bloomberg. Sales rose 22 percent to 40.3 billion euros. The share dropped the most in more than five months.

"We expect revenues of group sales and operating income in 2011 to be significantly higher than last year," the company in Wolfsburg, Germany-based said in a statement today. "However, the continuing volatility in interest and exchange rates and commodity prices will weaken the effect volume."

VW is pressed by rising production costs and lower margins on cars sold outside Europe. Oil prices rose 19 percent over the past 12 months, while prices of steel have gained 7 percent.The euro rose 10 percent against the dollar over the past year, which means earning less than the VW cars sold outside its home region.

"Until now, the market got used to beat the VW expectations," said Daniel Schwarz, an analyst based in Frankfurt, Commerzbank AG, who recommends buying the shares. "VW now simply failed to deliver the good news people were looking for."

Shares drop

VW fell as much as € 10.90, or 7.8 percent, to € 133.15, the biggest drop since March 15 and was down 4.7 percent to € 137.35 as 16 : 42in trade in Frankfurt. The stock has gained 13 percent this year, valuing the German carmaker to 60.9 billion euros.

Volkswagen is expanding in the U.S. and emerging markets including China and Russia in an attempt to overcome Toyota Motor Corp. as the largest automaker in the world in 2018. The manufacturer of the Golf hatchback is also growing in Europe, where he revived market share in the first half to 22.8 percent from 21.1 percent at the expense of Ford Motor Co. and PSA Peugeot Citroën.

Operating margin for the second quarter rose to 7.9 percent from 6 percent.Net income for the period more than tripled to 4.67 billion euros.

"The coming months will be difficult for us and force us to work hard to maintain this high level," Chief Executive Martin Winterkorn said in the statement.

Volkswagen Makes Mandatory Bid for German Truck Maker MAN

Volkswagen long cherished dream to surpass the two largest truck manufacturers, Daimler AG and Volvo AB could be much closer to reality than previously thought. Just after increasing its stake in MAN, Volkswagen now aims to increase collaboration between the two companies and Scania AB of Sweden and has made ​​a mandatory offer for the German truck maker famous.

As part of the company plan to merge with its rival the acquisition of Scania, Volkswagen increased its ownership of common units of man, from 29.9 percent to 30.47 percent. So good enough German standards, the company made a mandatory offer to shareholders of truck manufacturer offering 95 euros (U.S. $ 136.73) for each common share for the man. However, the price is lower than the current price of the action of € 96.89.

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