July 26, 2019 / 5:42 AM / 4 months ago

Renault cuts revenue goal as car industry misery spreads

PARIS (Reuters) - Renault (RENA.PA) warned revenue may decline this year, scrapping a previous goal, after first-half profit was hit by weakening car demand and an earnings collapse at alliance partner Nissan (7201.T) in the wake of the Carlos Ghosn scandal.

FILE PHOTO: Renault Zoe drives during electric car E-Rallye Baltica 2019 near Iecava, Latvia July 23, 2019. REUTERS/Ints Kalnins/File Photo

Net income slumped by more than half to 970 million euros ($1.08 billion) in January-June as revenue fell 6.4% to 28.05 billion, the French carmaker said on Friday. Operating profit also dropped 13.6% to 1.65 billion euros.

“Given the degradation in demand, the group now expects 2019 revenues to be close to last year’s,” Renault said - abandoning an earlier pledge to increase revenue before currency effects.

A broad-based auto sales downturn has rattled the sector, prompting profit warnings and compounding challenges for Renault and Nissan as they struggle to turn the page on the Ghosn era. Their former alliance boss is now awaiting trial in Japan on financial misconduct charges he denies.

Renault’s bottom line was hit by an 826 million-euro drop in earnings from its 43.4%-owned partner. Nissan is cutting 12,500 jobs globally after an earnings collapse that it is keen to blame on Ghosn’s leadership.

But Renault’s own performance - reflected in an operating margin that declined to 5.9% from 6.4% the year before - compares less favorably with domestic rival PSA Group (PEUP.PA). The Peugeot maker bucked the downturn with a record 8.7% profit margin unveiled on Wednesday.

Alliance tensions flared after Ghosn’s November arrest, worsened when Renault tried in vain to merge with Nissan then Fiat Chrysler (FCHA.MI), and may be affecting operational performance, investors fear.

Citi analyst Raghav Gupta-Chaudhary flagged a lower-than-usual 258 million euros in joint purchasing savings for Renault. “We thought this would be weak in light of the well-documented difficulties with the alliance,” he said.

Renault blamed falling sales in France, as well as Turkey and Argentina, for a 7.7% revenue drop at its core automotive business, whose profit margin slid to 4% from 4.5%.

Operating free cash flow also suffered, coming in at a negative 716 million euros as investment jumped by 742 million euros to 2.91 billion.

Renault, which is counting on model launches including a new Clio mini to boost performance in the second half of 2019, nonetheless reiterated pledges to deliver positive full-year cash flow and a margin close to 6%.

Renault shares were down 0.5% at 52.02 euros as of 0800 GMT in Paris, after initially falling as much as 2.7%. The stock remains almost 19% below its level on the eve of Ghosn’s Nov. 19 arrest in Tokyo.

Reporting by Laurence Frost and Gilles Guillaume; Editing by Sherry Jacob-Phillips and Mark Potter

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