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Published On: Wed, Jul 30th, 2014

Peugeot reports its first quarter profit after three years of loss

Peugeot has reported a profit for the quarter, a result better than analyst forecasts, by cost cutting and introducing new models.

Peugeot reports its first quarter profit after three years of loss

Peugeot, Europe’s second largest auto manufacturer, beat expectations in the first half. Following a three year loss period, it recovered on the strength of cost cuts and the introduction of new models. The biggest rise in the shares of Peugeot in the past over 5 months in Paris trading followed the report of 477 million euro operating income, after a 100 million euro deficit a year earlier. The profit exceeded the average analyst estimates of 358 million euros.

Peugeot, not being able to generate profit since the first half of 2011, collaborated with Chinese Dongfeng Motor Corp., to expand business outside Europe where demand is growing after a 20 year low. Peugeot’s losses were due to European market saturation. Now it is taking measures: closing a factory by Paris and concentrating on new vehicles which bring more profits.

Peugeot stock is going to catch the attention of numerous portfolio managers. The intraday gain for Peugeot was 8.5 percent, the most massive gain since February. This year the company stock has soared by 44 percent, which brought the company valuation to 8.8 billion euros.

The auto manufacturer’s cash flow for the first half of the year was 1.67 billion euros. The company reduced cars at dealer lots by 30,400. The rigorous control of the inventory yielded working capital improvement of 1 billion euro. The forecast for the car market growth in Europe was pinned at 3 percent.

Peugeot’s CEO Carlos Tavares informed analysts the company considers the situation in Europe unstable, which makes it cautious. Uncertainty on emerging markets is adding to the slow recovery of demand in France. Furthermore, Peugeot is expecting a 10 percent decline on the Russian market, and a 7 percent drop in Latin America auto sales. But the auto maker stated again its 2016 goals of reaching positive operational cash flow, and for 2018, targeting a 2 percent of sales profit.

The collaboration project is financed partly by stock sale in the beginning of this year, with Dongfeng and France the investors with 14 percent stakes for each. In April CEO Tavares revealed a plan for scaling back the Peugeot lineup to 26 models by 2022, compared to currently 45 vehicles, and transforming the luxury DS, formerly belonging to the Citroen unit for the midmarket, into a premium brand. Peugeot also plans further expansion into China, in addition to its current three factories jointly operated with Dongfeng.

Cutting Peugeot spending has included reducing French workers by 17 percent. Wages are expected to drop to under 14.5 percent of revenue for 2014, compared to last year’s 15.1 percent. The first half revenue went down from 27.7 billion to 27.6 billion euro, impacted by foreign exchange. There was a delivery rise, due to the Peugeot 308 hatchback demand. Automotive unit earnings reached 7 million euro, after a 538 million euro operating loss a year earlier. Savings reached 254 million euro, and capacity use soared to 84 percent, up from 72 percent for 2013. That was the division’s first profit since 2010.

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