Auto supplier Valeo sinks 20% after profit warning
Warning from company with Galway operation comes as analysts expect ‘ugliest reporting season’ for car suppliers since 2015
Valeo, which has a major research arm in Tuam, Co Galway, that is working at the forefront of driverless car technology, slashed its forecasts on Thursday after markets closed
French auto supplier Valeo sank by almost 20 per cent as trading opened in Paris on Friday after a profit warning the evening before.
Valeo, which has a major research arm in Tuam, Co Galway, that is working at the forefront of driverless car technology, slashed its forecasts on Thursday after markets closed. It warned for the second time since July that sales into year-end would continue to be hit by emission standards in Europe and a slowdown in China. Valeo’s share price has now more than halved this year.
“We feared the quarter-three print would be bad, but not quite like this. 2018 operating profit is being guided to be 20 per cent below consensus, and that is before the higher losses for the Siemens-JV. Consensus estimates for 2018 operating profit after JVs will need to be revised down by 23 per cent,” said analysts at Citi. “Being prudent we foresee a 16 per cent cut to 2019 EBIT.”
Valeo joined Michelin in forecasting a difficult end of year after the tyre company saw shares drop 9 per cent last Friday on warnings of declining demand for tyres in western Europe and China, in part because of the same new EU emission standards.
Analysts at Evercore had said they were “expecting the ugliest reporting season” for car suppliers since 2015, with “80 per cent of suppliers likely to further reduce their full-year 2018 guidance”.
“Valeo’s growth, operating performance and share price has been in decline for almost 18 months. It’s been a tough period, and at some point we hope the deterioration is arrested and even reverses. But it doesn’t look like we’re going to catch a break yet,” said Max Warburton at Bernstein.
China’s slowdown in particular caught Mr Warburton’s eye. “On top of the market slowdown, we ultimately believe that Valeo is exposed to various struggling OEMs [big car manufacturers] who are engaging in aggressive purchasing tactics. Ford was explicitly mentioned on the call, but Valeo is also highly indexed to the domestic players [55 per cent of Chinese sales] who are notoriously tough on their suppliers. We were even told – in a refreshingly open remark from the CEO – that ‘Geely is not an easy customer’ to work for. For Valeo to work from here, its fortunes in China need to drastically improve.”
– Copyright The Financial Times Limited 2018