Johannesburg - Renault SA shares
posted the biggest decline in a year after first-half profit fell short of
estimates and the carmaker said price pressures are rising in some markets.
The stock fell as much as
7.2 percent, the most since June 2016, after the French automaker warned that
it was struggling to get consumers to pay for all the costs of new technology
and failed to keep pace with Paris-based rival PSA Group. While Renault’s
operating margin increased to 6.2 percent of sales from 6.1 percent,
profitability at the maker of Peugeot and Citroen cars jumped to a record of
7.3 percent from 6.8 percent.
“There were clearly
expectations of stronger operating results,” especially in automotive earnings,
said Arndt Ellinghorst, a London-based analyst with Evercore ISI. Renault’s
first-half operating profit rose 18 percent to 1.82 billion Euros ($2.13
billion), below the 1.85 billion-euro average of three analyst estimates
compiled by Bloomberg.
While the results are a
first-half record for the French carmaker, Renault may not benefit in the
future from price increases in some countries as customers balk at paying for
extra costs for cleaner emissions, potentially weighing on profit, Chief
Financial Officer Clotilde Delbos told reporters. The cost of adding
enhancements to its autos, called the "price mix enrichment effect"
by Renault, had a negative impact of 180 million Euros in the first half, the
carmaker said.
Carmakers have been
preparing for stricter European regulations on emissions, and scrutiny has
intensified following the Volkswagen AG cheating scandal, which prompted a
decline in demand for diesel cars. French automaker PSA Group plans to import
at least 55,000 gasoline engines from its Chinese plants to meet the growing
demand, leading to extra costs.
“We are as affected as
anybody else” by the decline of diesel, Renault’s head of performance, Stefan
Mueller, told analysts, adding that 47 percent of the passenger cars the group
sold as of June were equipped with diesel engines, versus 55 percent a year
earlier.
Operating Leverage
At Renault, revenue climbed
17 percent to 29.54 billion Euros in the first six months of the year, in line
with analysts’ estimates. Net income was 2.38 billion Euros, up from 1.5
billion Euros.
The contribution of
associated companies, mainly Nissan, came to 1.32 billion Euros, compared with
678 million Euros last year. The figure was boosted by the sale of Nissan’s
stake in equipment manufacturer Calsonic Kansei in the first quarter, even as
operating profit at the Japanese carmaker fell in the first quarter. Renault
owns a 43 percent stake in Nissan, while Nissan owns 15 percent of Renault,
forming a partnership that the company dubbed “the Alliance” and that recently added Mitsubishi.
“We see little upside on
core sentiment, unless Nissan returns to peak valuations,” Harald
Hendrickse, a London-based analyst with Morgan Stanley, said in a note.
“Nissan’s first-quarter miss on U.S.
incentives and higher raw materials suggests some concerns there also.”
‘Little Upside’
Renault lifted its market
forecasts in Russia and Brazil earlier
this month. It predicts the global car market will expand by 1.5 percent to 2.5
percent this year, with growth of 5 percent in China,
8 percent in India and 2
percent in Europe. The European market has
been recovering for more than three years after slumping to a two-decade low.
Read also: Renault shares fall on emissions cheat allegations |
The French automaker sold
1.88 million vehicles in the first half. That includes AvtoVAZ’s sales, which
it consolidated in January. The CFO said the maker of Lada cars almost broke
even in the first half.
Renault confirmed its 2017
financial targets, including an increase in group revenue, at constant exchange
rates and beyond the impact of the consolidation of AvtoVAZ in its accounts, and
higher operating profit in Euros.
The company intends to
present a plan in October to increase annual revenue by 37 percent to 70
billion Euros by 2022 and lift its operating margin to 7 percent of sales in
five years from 6.4 percent. Timing of that announcement will roughly
correspond to those of its partners, Nissan Motor Co. and Mitsubishi Motors
Corp, with conferences in October or November, the CFO says.
Efficiency savings amounted
to 200 million Euros in the first half, compared to 6 million Euros a year
earlier. Last year, the company missed its own target of saving 350 million Euros.
“Our efforts to cut costs went back to a more traditional level, despite a
continuation of our efforts to prepare the future, including making connected
vehicles,” Delbos said.