Peugeot Citroën lowers earnings forecast

Chief executive Philippe Varin is pictured with Narendra Modi, Gujarat chief minister, in Gandhinagar, India, on September 1.

Story highlights

  • Peugeot: Third-quarter revenues from automotive division fell 1.6 percent on year ago
  • Peugeot says it expects full-year operating income to be "close to break-even"
  • Chief executive Varin says Peugeot was cutting production days, may need to cut staff
  • Under his leadership, carmaker has expanded into faster-growing emerging markets
PSA Peugeot Citroën cut its earnings guidance, as it reported lower third-quarter revenues from its automotive business, sending one of the first signals that the eurozone crisis is hitting the car industry.
The French carmaker, Europe's second-largest by sales after Volkswagen, also announced €800m ($1.1bn) of cost cuts, which it said it would present to its European works council on Wednesday.
Peugeot said that third-quarter revenues from its automotive division fell 1.6 percent on a year ago to €1.31bn because of sourcing difficulties and increased pricing pressure since September.
The group's overall third-quarter revenues were 3.5 per cent higher than a year ago, and slightly ahead of consensus forecasts of analysts polled by Reuters.
However, Peugeot said that it expected full-year operating income to be "close to break-even" because of a more difficult operating environment for the group, down €300m from its previous earnings guidance.
The company said it expected to end the year with lower free cash flow from its manufacturing and sales companies.
"The competitive environment has become more challenging due to pricing pressure, which has intensified in Europe since September, and the unfavorable impact on the country mix of the fall-off in demand in southern Europe," the carmaker said in a third-quarter financial statement.
Peugeot said it would have "negative impacts" for the full year of €250m from the earthquake and tsunami in Japan, which hit its suppliers, as well as €700m of higher raw materials prices.
Philippe Varin, chief executive, told the Financial Times last month that Peugeot was cutting production days and might need to reduce staff in order to keep inventory under control in the face of slower sales.
Peugeot said that its cost-cutting plan for next year included provisions to reduce purchasing costs by €400m and fixed costs by €400m.
Under Varin's leadership, the French carmaker has sought to grow out of its niche as a low-margin, mass-market small-car producer in Europe by expanding into faster-growing emerging markets and developing higher-priced cars like Citroen's new upscale DS line.
Peugeot said it expected Europe's car market to remain stable this year, grow by almost 7 percent in China, almost 6 per cent in Latin America, and 30 percent in Russia.
Commenting on the company's financial report, Credit Suisse wrote: "PSA (is) the first victim in the European mass market during this reporting season."
Goldman Sachs, in a research note, wrote that the company's third-quarter report "highlights the strategic and operational challenges, amplified by a deteriorating operating environment". The bank has a "sell" recommendation on Peugeot's stock.