Peugeot up, Renault down

July 26, 2001 Posted: 1820 GMT

LONDON (CNN) -- Two leading French automakers reported mixed earnings Thursday.

PSA Peugeot Citroen, Europe's second-largest automaker by vehicle sales behind Germany's Volkswagen, said profit for the six months to June 30 rose 36 percent to 1.03 billion ($902 million) from 755 million ($662 million) a year earlier. Sales rose 20 percent to 27 billion ($23.7 million) on demand for its 206 and 307 models.

Renault SA said first-half operating profit fell 73 percent to 304 million ($266.6 million) as an aging product line-up forced sales and margins down.

Peugeot has avoided the pitfalls of rivals that expanded rapidly outside Western Europe to win market share. Instead, it has rolled out sleek small and compact cars with gasoline and increasingly popular diesel engines.

While demand in Western Europe fell 1.8 percent during the first half, Peugeot has pushed up sales of cars and light commercial vehicles, increasing market share by 1 percentage point to 14.5 percent.

The carmaker expects to increase sales to 3 million vehicles in 2001 from 2.7 million last year, as it drives through operating margins to 4.8 percent and operating profit to 2.6 billion ($2.28 billion) at its automobile business.

"The second half of the year will be shaped by ramp-up to full production, after the initial launch phase, of the Citroen C5 and the Peugeot 307 and, in Brazil, of the Citroen Xsara Picasso and the Peugeot 206," the company said.

Peugeot's stock rose 2.2 percent to 53.35 ($46.79) in midday Paris trade. The stock has risen by a third from a low of 39.25 ($34.42) in January. But some analysts expressed concern about the company's product line.

"What worries me is that they are at the top spot in their product life and things are only likely to get tougher," UBS Warburg analysts Xavier Gunner said.

	Sales of the Laguna have helped Renault's bottom line

Peugeot is expected to lose about 200 million ($175.4 million) in South America, as demand for new cars wanes in Brazil and Argentina amid an economic slump.

"Argentina and Brazil are going to weigh a bit more than 100 million ($87.7 million) on the operating margin in the first half. I fear it will be a similar figure for the second half," Chairman Jean-Martin Folz said. "We can say we are not expecting break-even in Argentina this year."

"Peugeot is investing a lot in Brazil and our view is that the Brazilian market will be painful in the medium term," Gunner said.

Despite lower operating profit, net income for Renault jumped to 779 million ($683 million) thanks to its stake in Japanese affiliate Nissan Motor Co., which contributed 273 million ($239.4 million) to Renault's first-half bottom line, compared with a loss of 397 million a year earlier.

However, the decline in the company's operating profit was smaller than expected. Analysts polled had predicted that operating profit would tumble to 231 million ($202.6 million) from 1.146 billion ($1 billion) in 2000.

Renault said its results were better than expected thanks to its new, large, higher-margin Laguna, which went on sale at the start of 2001, and as more expensive diesel-powered cars accounted for a bigger proportion of sales than last year.

Renault depends on cheap, small cars for roughly 70 percent of its profits. With few profitable, expensive cars to fall back on, it is highly sensitive to the vagaries of automobile demand.

With a slightly older product line-up than Peugeot, Renault has been forced to add more pricey features to its cars to prop up sales, which in turn has decimated profit margins.

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