October 25, 2018 / 5:24 PM / a year ago

UPDATE 1-Valeo issues new warning on emissions upheaval, China slump

(Adds CEO comment, details, background)

PARIS, Oct 25 (Reuters) - French auto parts maker Valeo slashed its full-year sales and earnings goal, blaming industry disruption from the introduction of tougher European emissions tests and a sharp sales downturn in China.

In its second profit warning in three months, the maker of vehicle lighting, electrified transmissions and autonomous driving sensors cut its 2018 revenue growth target to 6 percent from 9 percent at constant exchange rates.

“We were taken by surprise by the speed at which the Chinese market declined,” Chief Executive Jacques Aschenbroich told analysts on a call.

Valeo reduced its operating margin goal to 6.2-6.5 percent - having earlier predicted profitability “slightly below” last year’s 7.8 percent - and cut its free cash flow objective to 120-150 million euros ($136-$171 million) from 278 million.

Chinese vehicle registrations shrank for the third consecutive month in September, recording its biggest year-on-year decline in seven years.

The new Worldwide Harmonised Light Vehicle Test (WLTP) became mandatory in Europe last month, forcing Valeo customers including Volkswagen and Renault to halt deliveries of some models that had yet to be re-certified.

WLTP disruption has been cited in profit warnings by carmakers including BMW and Daimler

The impact of the new tests will “continue into the fourth quarter”, Valeo’s Aschenbroich said on Thursday.

Valeo posted 4.49 billion euros ($5.1 billion) in third-quarter revenue, up 5 percent at constant exchange rates. Excluding the effect of acquisitions, however, revenue was almost flat.

Its strongest divisional sales performance was the 3 percent growth in comfort and driving assistance, excluding currency effects and acquisitions. Powertrain and lighting both recorded year-on-year declines, with thermal systems little changed.

$1 = 0.8794 euros Reporting by Laurence Frost; Editing by Sudip Kar-Gupta and Elaine Hardcastle

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