Peugeot posts record earnings despite sales dip

French carmaker PSA Group shrugged off a drop in Chinese sales and an ageing lineup to deliver record first-half profit, as chief executive Carlos Tavares made progress on his turnaround plan for the maker of Peugeot, Citroen and DS cars.

PSA shares surged 8.5 per cent after the company said net income more than doubled to €1.21 billion despite a decline in revenue and deliveries, soundly beating market expectations.

"This was a very strong result, and Tavares continues to make significant headway in transforming the company," said Evercore ISI analyst Arndt Ellinghorst, who has a "sell" rating on the stock.

Automotive division

The closely watched core automotive division increased profit by a third to €1.3 billion, lifting its operating margin to an all-time high of 6.8 per cent from 5 per cent.

Since emerging in 2014 from a brush with bankruptcy and a government-backed bailout, PSA has been pushing an international expansion to reduce its dependence on the European mass market.

But the Paris-based carmaker fell behind arch-rival Renault in global deliveries for the first half, as sales of its ageing model line-up fell almost 20 per cent in China and lost market share in a recovering European market.

Pricing nonetheless improved for all three brands, PSA said, and sales are expected to gain momentum from a product offensive getting under way, with eight model launches this year.

Chinese costs

PSA is seeking to cut its China operating costs by 10 per cent annually under a plan agreed with shareholder and joint venture partner Dongfeng, chief financial officer Jean-Baptiste de Chatillon said.

He also pledged €200 million in extra savings this year as PSA cuts wage costs towards a targeted 11 per cent of revenue, from 12 per cent last year.

“These action plans are not over,” he said. “We’re continuing to right-size our fixed costs.”

PSA shares rose 8.5 per cent to €13.56 in Paris in early trading.

PSA, which has flagged openness to mergers and acquisitions, frustrated some analysts by issuing no 2016 guidance, nor changes to midterm profitability goals it has already beaten.

"Peugeot may stay unclear at this point on cash uses to keep its options open on M&A as long as possible," said Thomas Besson of Kepler Cheuvreux, reiterating his "buy" rating on the stock. – (Reuters)