PSA keeps margin target as first half rises

PARIS (Reuters) -- Europe's second-biggest carmarker PSA/Peugeot-Citroen on Wednesday maintained its operating profit margin target for 2008 as first-half earnings rose more than expected on the back of cost cuts.
 
The company repeated it expected a slowdown in western European markets of around 4 percent this year with a more difficult second half.
 
Car sales are down in Europe amid fragile consumer confidence, record fuel prices, rising interest rates and fears of a car market plunge in the wake of the financial crisis that began in the U.S. subprime mortgages sector.
 
The operating margin for the first half was 3.6 percent, against 10 analysts' average forecast of 3.3 percent and versus 2.7 percent last year. The 2008 target is 3.5 percent.
 
Recurring operating income was up 32.4 percent at 1.115 billion euros ($1.78 billion) against the analysts' average expectation of 1.034 billion in a Reuters poll.
 
The company expected a negative impact of higher raw material prices of 300-350 million euros in 2008 versus 2007.
 
The French group kicked off European car earnings, with larger German rival Volkswagen and Fiat of Italy also due on Wednesday and Renault on Thursday.
 
World number two truck maker Volvo reported a bigger-than-expected second-quarter rise in pretax profit and maintained its outlook for its main markets this year, but warned of growing consumer caution.
 
Several analysts have slashed earnings estimates for European car makers, with Morgan Stanley this week cutting its 2008 estimates by 10 percent and those for 2009 and 2010 by 25-30 percent due to the weak market and high raw materials.
 
Lehman Brothers, Credit Suisse and Citigroup also see trouble ahead for carmakers, just as several profitability programs were starting to show some benefits.
 
PSA, in which the Peugeot family still owns a 30 percent capital stake and holds 45 percent of the votes, is in the second year of its Cap 2010 plan drawn up by CEO Christian Streiff to boost margins by selling more cars in more countries.
 
PSA/Peugeot-Citroen shares have lost about 40 percent of their value this year, underperforming the Dow Jones Stoxx auto index, which shed over 27 percent.
 
Cost cuts
 
PSA said it had achieved 882 million euros in cost cuts, partly because it had shed about 10,000 jobs since June 2007 and now employs some 162,500 people in western Europe.
 
The cost cuts were also due to a drop in warranty expenses, overheads and fixed costs and higher productivity.
 
Higher raw material costs, wages and negative foreign exchange movements such as the weak pound, eroded earnings by 461 million. PSA uses a pound rate of 80pence per euro.
 
Inventories of unsold cars rose to 668,000, from 604,000 in December and 619,000 in June 2007, partly due to the launch of new models -- 10 new models were launched during the first half such as the Citroen C5 and Peugeot 308 station wagon and another nine will follow in the second half.
 
Banque PSA Finance had an operating income of 308 million, despite what it called "a highly disruptive banking environment".
 
The net financial position of the group fell to 1.257 billion euros from 1.404 billion at end 2007.
 
There was a net charge of 86 million euros, mainly for restructuring costs, against 287 million in 2007, and the net income rose 49 percent to 733 million.
 
Group sales were up 1.6 percent to 31.299 billion.
From: Automotive News Europe

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