PSA Peugeot Citroen, Europe’s second-biggest carmaker, said its automotive division may post a second-half loss because of lasting disruption from the Japanese earthquake in March and rising material costs.
“We’re encountering much stronger headwinds than we expected at the start of the year,” Chief Financial Officer Frederic Saint-Geours said today on a call with reporters as he presented results for the first six months.
Peugeot abandoned a goal of increasing second-half earnings at the division while announcing a 1.8 percent gain in first- half group operating profit and maintaining its pledge to increase the companywide figure in 2011. Japanese parts shortages will wipe 100 million euros ($145 million) from earnings, in addition to a 150 million-euro cut in the first half, while prices for steel and other materials will trim profit by 40 percent more than forecast.
“What’s new here is that the Japan impact isn’t limited to the first half,” Erich Hauser, a London-based analyst at Credit Suisse, said in a telephone interview.
Peugeot’s results also show strong pressure on pricing that almost wiped out the Paris-based company’s gains from model introductions, Hauser said. “Everything we see today points to a worsening second-half performance for the entire European sector.”
First-half group operating profit, which excludes one-time items, advanced to 1.16 billion euros from 1.14 billion euros, Peugeot said today in a statement. As a proportion of sales, earnings fell to 3.7 percent from 4 percent.
Peugeot said it will seek more savings to try to make up for a 300 million-euro earnings reduction from materials and parts disruption, which will otherwise cut 2011 auto-division operating profit to as little 321 million euros from 621 million euros last year.
That would represent an 84 million-euro loss in the second half, the division’s first loss in two years, after a 405 million-euro profit for the first six months.
The carmaker is seeking to boost profitability with a revamp of key products and an expansion into higher-priced vehicle categories. Higher-end models, including the 3008 crossover, DS3 minicar and 508 large car, accounted for 17 percent of first-half deliveries compared with 14 percent a year earlier.
While the introduction of upscale models lifted first-half earnings by 412 million euros, that gain was mostly canceled by a 311 million-euro negative impact from declining prices, Peugeot said today.
Net income rose to 806 million euros from 680 million euros a year earlier, on a 9.7 percent increase in sales to 31.1 billion euros. Excluding the earthquake’s effects, group operating profit totaled 1.3 billion euros, while the automaking unit’s earnings increased to 552 million euros.
Chief Executive Officer Philippe Varin’s three-year performance plan has targeted 3.3 billion euros in additional earnings by next year through higher sales, shorter model- development times and a 20 percent gain in manufacturing productivity. The carmaker ranks second in Europe to Wolfsburg, Germany-based Volkswagen AG , based on global deliveries.