PARIS -- Belt-tightening at Europe's largest listed car part maker Valeo yanked the company back to profit in 2002 and helped it nail a key operating margin target, driving its shares up more than 6 percent Tuesday.
The Paris company, which makes headlights, windscreen wipers and clutches, posted a net profit of 135 million euros compared with a loss of 591 million in 2001, short of expectations for 163 million.
But investors cheered Valeo's operating performance, after it said it met a target for operating margin -- a key measure of profitability -- of 6 percent in the fourth quarter, and said this was "a good target" for 2003.
"We will continue to progress at the operating level in 2003," said Chairman Thierry Morin, who spearheaded a cost-cutting plan to turn the company around after charges at a loss-making U.S. unit pounded the company to a net loss in 2001.
Morin said in a news conference that the company, which swelled its operating margin to 5 percent in 2002 from 3.8 percent the previous year, would rev further ahead at operating level as it reaped the rewards of tighter spending and flash new products.
But Morin, who bet car output would dip 5 percent in the United States and 4 percent to 5 percent in Europe, would struggle to boost revenues in 2003 faced with pricing pressure from carmakers and a weak dollar that would continue to bite into export revenue.
Like other auto suppliers, Valeo is battling weak demand for its components as motorists, jittery about the world economy, delay splashing out on cars, prompting manufacturers to rein in production. But analysts said these results were a good sign.
"The company is solid and has good visibility. Even if the market is bad this year, they expect to improve their margins," said Gaetan Toulemonde, autos analyst at Deutsche Bank in Paris.
Operating profit for 2002 was in line with expectations, swelling to 487 million euros from 388 million in 2001. Analysts polled by Reuters had forecast operating profit of 488.1 million.
Sales fell 4 percent to 9.803 billion euros as European car output slumped due to shaky consumer confidence, but the ratio of order book to sales edged up to 1.2 from 1.0 in 2001, indicating sales are on the upswing.
Morin told reporters he hoped the ratio in 2003 would improve to 1.3-1.4, although this would not necessarily translate to higher revenues, as hard-pressed carmakers refuse to pay top dollar for its products.
The outlook for 2003 was "fuzzy", with a looming war in Iraq, and U.S. carmakers in particular would suffer as they struggled to offload a surfeit of stocks from 2002, he said.
Valeo said higher car output in the United States in 2002 helped sales, although uncertainty at its loss-making U.S. unit and a weak dollar pinned revenue growth to 1 percent. Sales in Europe slipped 2 percent, in line with a drop in output.
Once one of France's top corporate success stories, Valeo had scrambled back to profit in the first half of 2002 after swinging to a loss in 2001, and it said fourth-quarter figures confirmed the turnaround.
Net profit in the fourth quarter was 36 million euros, compared with a loss of 417 million in the same period in 2001.
The company said it proposed a 2002 dividend of one euro per share, compared with 0.7 euro the previous year, which analaysts said was also a sign of confidence.
Under Morin, who took the helm in March 2001, Valeo has slashed jobs, cut administrative and research and development costs, and has shifted plants to cheaper labor markets.
Morin confirmed that its U.S. unit in Rochester, hauled back from insolvency, would break even by the end of 2004.