Renault Ducks Trade Tensions to Lift Profit Along With PSA

(Bloomberg) -- Renault SA lifted profitability on cars like the mass-market Duster compact sport utility vehicle, and vowed to close the gap with its cross-town rival in Paris, PSA Group.

Both carmakers count Europe as their biggest market, insulating them from the trade wars that have roiled much of the global automotive industry. Operating margin for Renault increased to 6.4 percent, the company said Friday in a statement -- a record, though trailing the surge to 7.8 percent reported Tuesday by PSA, the maker of Peugeot and Citroen cars.

“This is a good result for Renault in a year of increased spending requirements,” Arndt Ellinghorst, a London-based analyst at Evercore ISI said in a note. “Compared to the blowout quarter from its French peer PSA, we feel Renault’s performance will have been overshadowed by an outstanding sibling.”

PSA this week surprised the market by reporting the first profit in almost two decades at its Opel brand, acquired from General Motors Co. last year. Analysts called the results, which also included profit margins at Peugeot and Citroen at the levels of premium nameplates like Audi and BMW, “immense” and “more than impressive”. The company’s shares surged.

“We are glad to see our national competitor who’s successful,” Chief Operating Officer Thierry Bollore of the company said on a call with analysts. “It gives us high motivation to close the gap.”

Renault declined 0.3 percent to 73.01 euros at 10:03 a.m. in local trading, valuing the company at 21.6 billion euros ($25 billion). PSA rose 0.6 percent.

While both companies have largely escaped rising global trade tensions, they are affected by U.S. sanctions in Iran. Renault, making cars in the country since 2003 on Thursday stepped back from a deal to lift output and said it would probably quit vehicle manufacturing there. PSA has also yielded to U.S. sanctions, closing down a joint venture.

Rising trade barriers add to challenges from record spending on electric cars for companies with global operations. About half of all cars sold in the U.S. from German manufacturers like Daimler are imported from the European Union. While manufacturers won a reprieve this week when the two major trading partners backed out of a trade war for more talks, the U.S. continues its tit-for-tat exchange of blows with China that are hitting BMW AG’s and Mercedes shipments.

All three of the U.S. vehicle manufacturers cut their financial outlook for the year this week, citing a number of reasons including higher raw material prices and increasing trade barriers. Hyundai Motor Co. and Mercedes-Benz maker Daimler AG Wednesday also reported a weak quarter.

“Overall we aren’t impacted much by the issue of tariffs,” Chief Financial Officer Clotilde Delbos said on a call with reporters. Renault’s lifted its profit margin and revenue despite “headwinds, including rather significant currency swings.”

Renault reiterated its outlook for the year of raising group revenue and maintaining a return on sales above 6 percent. For the rest of the year, possible headwinds include new EU emissions testing standards, Delbos said. Daimler cited the new regime for a slowdown in deliveries during the third quarter because of bottlenecks.

Key facts:

  • 1H operating margin rises to 6.4% vs 6.2%
  • PSA boost operating margin to 7.8% vs 7.4%
  • 1H down 3% to 29.96 billion euros, incl. provision for restructuring charge
  • 1H operating profit 1.91 billion euros vs 1.82 billion euros
  • 1H net income 2.04 billion euros

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