POAHY Porsche Automobile Holding SE (PK)

By William Boston

WOLFSBURG, Germany--Volkswagen AG, struggling to shoulder the costs of its emissions-cheating scandal, on Tuesday forecast higher sales and earnings in 2017 as it detailed its return to profit last year following its worst-ever loss in the wake of the diesel crisis.

The German car maker faces a tough challenge convincing investors that it is putting the diesel crisis behind it and is on track to deliver strong earnings in the years ahead after racking up more than $25 billion in fines, penalties and compensation in the U.S. to settle criminal and civil litigation related to the diesel scandal.

The company recently reported net profit of 5.14 billion euros for last year, after a record loss of EUR1.6 billion for 2015. Volkswagen generated revenue of EUR217.3 billion last year, an increase of nearly 2%. The company sold 10.4 million vehicles in 2016, overtaking Toyota Motor Corp. as the world's largest auto maker by sales.

"2016 did not turn out to be the nightmare year that many predicted for Volkswagen," Chief Executive Matthias Muller told reporters. "Even though much work lies ahead of us, Volkswagen is back on track."

Volkswagen last week pleaded guilty to criminal charges for rigging diesel-powered vehicles to cheat on government emissions tests, capping the final significant U.S. legal settlement expected in a long-running deception that hammered the German auto company's reputation and finances.

For the new year, Volkswagen forecast a 4% increase in sales revenue, moderately higher vehicle sales, and a pretax return on sales of between 6% and 7%.

The outlook for 2017 was neither as detailed nor as robust as investors had hoped, causing Volkswagen's widely traded non-voting preference shares to slip 0.9% to EUR142.85 in early trading on the Frankfurt Stock Exchange.

Mr. Mueller, after taking the helm in September 2015, launched a major restructuring of the company in a bid to put more decision-making power in the hands of brand managers and regional organizations and increase profits.

The biggest challenge has been restructuring the Volkswagen namesake brand, the company's core passenger-car business. Efforts to boost productivity and earnings have been bogged down in internal power struggles between the brand's management and the powerful IG Metall trade union, which controls half the seats on Volkswagen's 20-member supervisory board.

VW-brand operating profit fell 11% to EUR1.9 billion last year.

"In times where most other car companies are improving efficiency and shaping the industry, VW needs to be very mindful not to waste any more time with internal power struggles," said Arndt Ellinghorst, auto analyst at Evercore ISI, a London-based brokerage. "Volkswagen's shareholders, employees and customers desperately need a success story."

Although the Volkswagen passenger-car business is the company's biggest division, the lion's share of profits come from its luxury brand Audi and sports-car maker Porsche.

Porsche remained robust in 2016, reporting a nearly 14% increase in earnings to EUR3.9 billion.

But Audi is struggling. New car sales edged up slightly last year, but earnings slipped nearly 6% to EUR4.85 billion.

Write to William Boston at William.Boston@wsj.com

(END) Dow Jones Newswires

March 14, 2017 06:46 ET (10:46 GMT)

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