July 27, 2018 / 5:37 AM / 20 days ago

Renault hits profitability record amid uncertainties

PARIS (Reuters) - French carmaker Renault (RENA.PA) achieved record profitability in the first half of the year, but currency and raw material costs weighed on its bottom line, with analysts suggesting it had been eclipsed by domestic rival PSA Group (PEUP.PA).

FILE PHOTO: The Renault automaker company logo is displayed on the front of a car dealership in Bordeaux, France, June 19, 2018. REUTERS/Regis Duvignau

Boosted by higher global deliveries announced earlier this month, Renault’s operating profit rose 5.2 percent to 1.914 billion euros ($2.23 billion) for an all-time high profit margin of 6.4 percent, up from 6.2 percent.

Revenue rose a modest 1.4 percent year-on-year to 29.957 billion euros, the carmaker said on Friday.

Renault, which is exploring a closer tie-up with 43.4 percent-owned alliance partner Nissan (7201.T), has expanded its low-cost lineup and emerging market presence in recent years.

Chief Executive Carlos Ghosn said the margin high was a result of Renault’s “strategy of regional diversification”.

Higher raw material costs nonetheless weighed on net income, which fell 16.3 percent to 2.04 billion euros, also burdened by a restructuring charge of about 150 million euros.

New European emissions-test standards also continue to add uncertainty to the second-half outlook, Chief Financial Officer Clotilde Delbos told reporters.

The French carmaker saw a slowing in growth of sales to partners - including diesel engines to Mercedes maker Daimler (DAIGn.DE) - and a lower share of profit from Nissan, which is losing ground in the U.S. market. The Japanese carmaker’s contribution dropped 38 percent to 805 million euros.

UPSTAGED

“Renault’s results are unlikely to bring much cheer in a sector that is struggling to find direction,” Bernstein analyst Max Warburton said.

Other analysts noted that Renault had been upstaged by PSA. The Peugeot maker’s CEO Carlos Tavares, a former second-in-command to Ghosn at Renault, stunned investors on July 24 with a 7.8 percent margin and snap turnaround at recently acquired Opel.

“Compared to the blowout quarter from its French peer PSA, we feel Renault’s performance will have been overshadowed,” said Evercore analyst Arndt Ellinghorst.

Renault shares were little changed, moving between positive and negative territory in Paris after the announcement. As of 0940 GMT the stock was up 1.5 percent at 74.32 euros.

Renault said earlier this month that first-half sales volumes had risen almost 10 percent, helped by rebounding markets in Russia and South America.

But negative currency effects led to a 0.5 percent decline in automotive revenues, which dipped to 26.867 billion euros despite pricing improvements.

EMISSIONS TEST

The overall results were broadly in line with analyst expectations, based on an Inquiry Financial poll for Reuters.

Reiterating full-year guidance, CFO Delbos said she expected “almost zero” second-half sales in Iran as U.S. sanctions bite. Renault has no recent Iran investments to write down, she added.

New European emissions-test standards continue to cloud Renault’s second-half outlook, she acknowledged. The company declined to quantify the predicted effects of any disruption.

Daimler and French supplier Valeo (VLOF.PA) have both warned of an earnings hit from the new Worldwide Harmonised Light Vehicle Test (WLTP) standards.

There is “still some work to do” for Renault to meet vehicle certification deadlines, Chief Operating Officer Thierry Bollore said, but added: “We do not anticipate significant negative impact on our business.”

Reporting by Laurence Frost and Gilles Guillaume; Editing by Sudip Kar-Gupta/Keith Weir

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