PSA Peugeot Citroen Sales Down So ...

PARIS, Oct 20, 2003; Rebecca Harrison writing for Reuters reported that French carmaker PSA Peugeot Citroen warned on profits for the second time in three months on Monday and posted a dip in quarterly turnover as it battles a rocky auto market and the impact of a strong euro.

Europe's second-biggest auto manufacturer cut its full-year operating margin target for its core car making unit to around three percent, bringing it into line with analysts' expectations compared with its prior target of 3.7 percent or more.

It also said it would sell fewer cars than previously forecast.

A former sector star, PSA is struggling with a slide in demand for cars in western Europe -- particularly in France -- and a strong euro, which the company said would take at least a 600 million euro ($700 million) bite out of group core profits this year.

PSA is also facing tough competition as some rivals wow motorists with flashy new designs, while others boost sales by slashing prices and offering profit-eroding incentives -- a tactic PSA has said it avoids.

Shares in the firm, which have lagged the DJ Stoxx European autos index by about 17 percent so far this year, gained 1.1 percent to 37.51 euros by 0930 GMT, beating sector rivals amid relief the widely flagged warning was not worse.

"They have said they have been conservative in setting their new target," said Morgan Stanley analyst Nicholas Hirth. "That means it should be achievable."

WORST OVER?

Chief Financial Officer Yann Delabriere said it was too early to give forecasts for 2004. But he told a conference call the western European car market had touched bottom and that PSA, which has been slashing output to match waning demand, had also seen the worst in terms of production cuts.

Chairman Jean-Martin Folz had carved out a reputation for PSA as Europe's most reliable mass carmaker and a profit warning in July was the first since he took the helm in 1998.

"(The shortfall in sales) is due to a weak European market and particularly the worryingly weak French market," said Delabriere, shrugging off suggestions PSA was losing out to rivals. "In terms of profit, the euro is the main factor."

PSA is not the only car maker to post sliding profits in a tough environment. Industry giant Ford last week posted a third-quarter net loss and was hit particularly hard in Europe where pricing pressure and a strong euro hurt business.

Some analysts reckoned PSA was well positioned to ride a recovery thanks to new cars next year and stringent cost control. But others noted it was suffering from a model line-up that is starting to look dowdy against smart new offerings from rivals like Renault (and Volkswagen .

"I think this is a company that has concentrated its success on two cars, the Picasso and the 307, and now it is facing competition on those," said JP Morgan autos analyst Himanshu Patel, noting new models from Ford and General Motors in Europe would also present a new challenge in 2004.

The company said in a statement 2003 unit sales would total between the 3,267,500 reported in 2002 and 3.3 million units -- short of an earlier target for 3.35 million units.

Group operating profit would be over 2.1 billion euros in 2003, compared with 2.91 billion euros last year, mainly due to currency effects.

Turnover in the nine months to the end of September fell 0.1 percent to 40.1 billion euros. Third quarter sales fell 3.5 percent to 12.36 billion euros, below analysts' expectations around 12.55 billion euros.

Demand for new cars has remained slack in France amid lacklustre consumer confidence and a summer heatwave and PSA said it expected its home market to fall some 6-7 percent this year, compared with one to two percent in western Europe.