Renault Reduces Unit Sales Target, Maintains Margins (Update1)

Tag : Steel Shutter

July 24 (Bloomberg) -- Renault SA , France's second-largest carmaker, posted first-half operatingincome that beat analysts' estimates and said it will cutproduction costs and jobs to meet its profit-margin goal for nextyear.
The Paris-based company's shares rose as much as 7.2 percent afterfirst-half operating profit rose 20 percent to 865 million euros($1.36 billion). That was higher than the 840 million-euro medianestimate of nine analysts surveyed by Bloomberg News. Renaultreiterated operating-margin goals of 4.5 percent in 2008 and 6percent next year, even after cutting its 2009 unit sales target to3 million vehicles from 3.33 million.
``It's good news that they're keeping their target, providing weknow where the 6 percent will come from,'' said Paris-basedDeutsche Bank analyst Gaetan Toulemonde , rating the company's stock a ``buy.'' ``Renault still needs todisclose a little more about the cost savings.''
For Renault, a series of misjudged or mistimed model introductionshas worsened the effects of a European auto-market slump, driven byhigher fuel prices. The no-frills Logan sedan, which has boostedRenault's business in emerging markets, missed targets for itsintroduction in India because it was priced too high, sales chief Patrick Blain said earlier this month.
``Renault remains on track'' for the 2008 profit target, thecompany said. ``However, worsening economic conditions would makethis milestone more difficult to attain.''
Renault shares jumped as much as 4.15 euros to 61.99 euros. Theyrose 2.5 percent to 59.27 euros at 9:43 a.m. in Paris, giving thecompany a market value of 16.8 billion euros.
Cutting Production
Renault will not publish first-half net income until its 44 percentowned Japanese affiliate Nissan Motor Co. reports earnings on Aug.1. Excluding Nissan's contribution, estimated net income rose 37percent to 1.47 billion euros, the French carmaker said. Sales rose2.3 percent to 20.9 billion euros.
The company also said today it will consult unions over plans tocut one of two remaining shifts at its Laguna plant in Sandouville,northern France, after the new hatchback clocked fewer than 60,000sales against its 190,000 goal for the first year. Renault hadalready eliminated one of the original three shifts earlier in theyear and last week announced a temporary stoppage of at least sevendays.
Production at Flins, near Paris, where Renault assembles its Cliosubcompact cars, may also be affected by the cuts, Renault said. Aprogram of voluntary job cuts is also being considered, targeting a10 percent cut in corporate overhead, without giving more details.
``We suffered a strong increase in our raw-material costs,'' ChiefFinancial Officer Thierry Moulonguet said during a briefing for reporters. The cost increases wiped 76million euros off Renault's first-half operating profit, whichexcludes one-time gains and losses, he said.
Car Market
The abandoning of the 2009 sales target may hurt the turnaroundplan unveiled by Chief Executive Officer Carlos Ghosn two years ago. Dubbed ``Commitment 2009,'' it also pledged toplace the Laguna in the top three for quality in its mid-sizedcategory.
European car deliveries sank 7.9 percent in June compared with ayear earlier as consumer confidence fell to a three-year low andoil prices doubled, according to data from the Brussels- basedAssociation of European Carmakers. While oil has fallen back inrecent weeks, steel prices are still about 60 percent higher sincethe start of the year, threatening to punish carmakers' margins asthey renegotiate supply contracts.
Renault also told workers this week that it will shutter its plantin Douai, France, for 24 days over the next four months becausesales of the Megane compact and its Scenic minivan versions havefallen more than expected, ahead of the model's renewal later thisyear.
Renault's global deliveries rose 4.3 percent to 1.33 millionvehicles in the first half on a 15 percent gain outside Europe,Renault said July 9, adding that full-year sales growth was likelyto be closer to 5 percent than to the 10 percent previouslytargeted.
-- Editors: Vidya Root, David Risser
To contact the reporter on this story: Laurence Frost in Paris at lfrost4@bloomberg.net Last Updated: July 24, 2008 03:56 EDT