PARIS -- Renault posted a forecast-beating rise in 2003 profits on Tuesday thanks to its stake in Nissan and the success of its revamped Megane range, and predicted more growth ahead.
Shares rose in Europe's fourth-biggest carmaker after it said net profit jumped 27 percent to $3.2 billion and operating profit fell a smaller-than-expected 5.5 percent, due to a strong euro and weaker sales in western Europe.
"These numbers are higher than expected," said Morgan Stanley analyst Adam Jonas, who rates the stock equal-weight. "But it's the outlook that is interesting -- raising a margin target that much when competition is tough and pricing difficult is surprising."
For 2004, Renault said strong sales of its love-it-or-hate-it Megane range as well as improved profitability outside western Europe and tighter cooperation with partner Nissan would further boost net profit and lift its operating margin to 4.5 percent from 3.7 percent in 2003. This assumes no major exchange rate shifts.
Renault has been cutting costs to boost profitability and has banked on the mid-sized Megane and Scenic spinoff to revive its fortunes after several years of fading profits as rivals churned out hit models and left its lineup looking dowdy.
Renault said 2003 revenues rose 3.3 percent to 37.525 billion euros thanks to strong sales in the second half.
The figures beat consensus forecasts in a Reuters poll of 17 analysts, which forecast net profit of 2.402 billion euros, operating profit of 1.317 billion and sales of 36.946 billion. The company had forecast an operating margin of 3.5 percent to 4.0 percent.
Chairman Louis Schweitzer said the impact of a strong euro took a 311 million euro bite out of the firm's operating profit, with 260 million of that due to a weaker British pound.
Domestic rival PSA Peugeot Citroen, a former market darling which fell from grace this year with a double profit warning due to an aging model lineup, is expected to post a 22 percent drop in 2003 net profit on Wednesday.
Schweitzer told a news conference he expected the car market in western Europe to edge up around 1 percent in 2004 after a fall of around 1.3 percent in 2003, with a 2.5 percent rise in France -- Europe's worst-hit major car market last year.
He said European carmakers jostling for space in a sluggish market were trying to boost sales by offering more incentives, although they had refrained from full-blown price war, unlike in the United States where price competition was eroding profits.
"While nominal prices are stable, the content (number of features) in a car is rising, so real prices are down," said Schweitzer. "Transaction prices are falling as discounts increase."
Nissan, in which Renault holds a 44 percent stake, contributed 1.895 billion euros to the French carmaker's bottom line, and Renault confirmed the Japanese firm would shift its accounting year into line with Renault from January 2005.
That means nine months of Nissan earnings, from March 31 to Dec. 31, would contribute to Renault's net profit in the second half of 2004.
Schweitzer said improved profitability outside western Europe would be a key plank of its growth plan for 2004 and that the firm hoped to break even in Brazil and Argentina in 2005.
The company's new low-cost car -- to be launched this autumn in Romania and built in eastern Europe, Morocco, Colombia, Russia and Iran -- will also help drive growth outside Europe and will help it reach its target of selling four million cars in 2010.