UPDATE 2-Faurecia cuts earnings view on European auto slump
* Car parts maker hit by falling European demand
* Expansion in Americas and Asia increases debt
* Faurecia plays down Peugeot effect
* Shares up 0.7 percent after early fall
By Christian Plumb and Gilles Guillaume
PARIS, July 24 (Reuters) - Faurecia, Europe's biggest maker of car interiors and exhausts, warned its full-year profit would be weaker than expected, knocked by falling car production in recession-hit Europe, still key to Faurecia's fortunes despite efforts to diversify.
Tumbling European auto demand has hammered automakers including Faurecia's parent company PSA Peugeot Citroen , which has announced plans to shutter a factory and cut thousands of jobs.
Faurecia's exposure to Europe, which accounts for almost 60 percent of its sales, has pushed the company to expand its footprint in more dynamic auto markets in North and South America and Asia, prompting Faurecia to lift its full-year sales target.
But Faurecia's profit woes are a sign that even a company which boasts a wide spectrum of carmaking customers and a global reach is not immune to the slump.
Also, outside Europe, the outlay for expansion - including plant openings and product launches - accounted for half of a 50 percent rise in capital expenditure in the first half, the company said in its first-half results statement on Tuesday, contributing to swelling debt which worried some analysts.
"The biggest surprise was not the profitability of the business but the bigger-than-expected increase in net debt," Credit Suisse analyst David Arnold said in a note to investors.
The reduced earnings outlook in spite of stronger sales expectations "highlights just how geared Faurecia is to Europe", where declining production makes it harder to cover fixed costs, Arnold said.
Net debt swelled to 1.525 billion euros ($1.85 billion) from 1.255 billion at the end of the year-ago first half, a particular concern given the company's sub-investment grade credit rating, another analyst said.
The company's cash burn in the first half exacerbated its debt, although Chief Executive Yann Delabriere said in a conference call that he expected to balance cashflow and stabilise debt in the second half.
Analysts also questioned how well its high-spending strategy was going in the U.S., its biggest market outside Europe, where sales jumped 39 percent but growth in operating profit was disappointing.
For the full-year, Faurecia, which makes seats and plastic car-body parts for clients including Volkswagen's Audi brand, cut its operating income forecast range to between 560 million and 610 million euros from a previous 610 to 670 million.
But it raised its full-year sales target to a range of 17 to 17.4 billion euros from a previous 16.3 to 16.7 billion forecast. It predicted that increased sales by German automakers and higher revenue in China and the Americas would outweigh contraction in the rest of the euro zone.
The profit warning followed a first half in which total sales rose 3.8 pct on a like-for-like basis to 8.76 billion euros but operating income fell to 302.5 million euros from 340 million in the year-ago period, with Faurecia's overseas drive not enough to offset falling demand in Europe.
The company's shares, which slid at the open, were 0.7 percent higher at 12.82 euros by 1147 GMT after its chief executive said no factory closings were planned as part of a European restructuring push.
Another Paris-based analyst said the results were unsurprising given Faurecia's high cost base in Europe and said the results were overall "in line".
Faurecia tried to allay concerns about its exposure to Peugeot, with CEO Delabriere saying it was not a "major driver of our growth base". Peugeot controls the parts supplier through a 57.2 percent stake and publishes interim results on Wednesday.
Faurecia said Peugeot, at 15 percent of business, was its second-largest customer, but that it expected Ford of the U.S. to overtake the French carmaker later in the year, behind No.1 client VW.
The troubled automaker, which is cutting more than 10,000 French jobs and closing a plant near the capital, has already warned that its core auto division recorded a 700 million operating loss, dragging its bottom line into deficit.
Delabriere told analysts that Peugeot was not considering selling shares in the auto parts maker as part of asset sales under consideration as part of its turnaround plan.
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