Renault shares slide as profitability lags PSA rival

Renault shares posted the biggest decline in a year after first-half profit fell short of estimates and the car maker said price pressures are rising in some markets.

The stock fell as much as 7.2% after the French carmaker warned that it was struggling to get consumers to pay for all the costs of new technology and failed to keep pace with Paris-based rival PSA Group. While Renault’s operating margin increased to 6.2% of sales from 6.1%, profitability at its rival, which makes Peugeot and Citroen cars, jumped to a record of 7.3%.

“There were clearly expectations of stronger operating results,” especially in automotive earnings, said Arndt Ellinghorst, a London-based analyst with Evercore ISI.

Renault’s first-half operating profit rose 18% to €1.82bn), below analyst estimates. While the results are a first-half record for the French carmaker, Renault may not benefit in the future from price increases in some countries as customers balk at paying for extra costs for cleaner emissions, potentially weighing on profit, chief financial officer Clotilde Delbos told reporters.

The cost of adding enhancements to its autos, called the “price mix enrichment effect” by Renault, had a negative impact of €180m in the first half.

Carmakers have been preparing for stricter European regulations on emissions, as scrutiny intensified.

“We are as affected as anybody else” by the decline of diesel, Renault’s head of performance, Stefan Mueller, told analysts, adding that 47% of the passenger cars the group sold as of June were equipped with diesel engines, versus 55% a year earlier.

Renault revenues climbed 17% to €29.54bn in the first six months of the year, in line with analysts’ estimates. Net income was €2.38bn, up from €1.5bn.

Bloomberg


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