PARIS -- French carmaker PSA Peugeot Citroen posted its first drop in full-year earnings in six years due to a dearth of new models and a strong euro, but its shares jumped on Wednesday amid relief it had sprung no nasty surprises.
Europe's second-biggest automaker said its net profit fell a smaller-than-expected 11 percent to $1.91 billion last year, while operating profit fell 25 percent to 2.195 billion euros, also better than analyst forecasts.
PSA, a former sector star that shattered its reputation as the most reliable performer among Europe's mass carmakers with a double profit warning this year, said it expected "moderate" sales growth in 2004 and operating profit similar to last year.
It was the first profit fall since Chairman Jean-Martin Folz took the helm in 1998, spearheading tough cost cuts that spurred profit growth and powered the firm past European rivals.
"Some people had been braced for terrible results and these numbers show the wheels haven't fallen off at PSA," said Stephen Cheetham, autos analyst at Sanford C Bernstein. "But to say it's out of the woods is a bit premature. We can expect pretty grubby first-half figures."
NEW MODELS AHEAD
PSA was hit in 2003 as motorists shunned its ageing models for the snazzier offerings of rival manufacturers. It also took a 567 million-euro hit from euro strength versus the British pound and other currencies.
Neither the impact of a strong euro nor sluggish demand in western Europe are likely to improve in the first half of 2004, when sales and earnings trends should be similar to the second half of 2003, PSA said.
But new models later in 2004 would boost business at the autos division and should have "a significant impact on market share and margins" in the second half, it said.
"All in all, 2004 will be a year of transition, paving the way for a return to more resounding growth in 2005," Chairman Jean-Martin Folz said, while CFO Yann Delabriere said sales growth this year would be below 5 percent.
Folz forecast a flat European car market and further weakness in France, where it makes a quarter of its sales. But he confirmed the company's target of selling four million vehicles in 2006.
"The outlook is pretty dull. Flat margins this year aren't going to set anyone on fire," said Robert Ashton, autos analyst at Commerzbank who rates the stock "equal-weight."
Operating profit at its core autos business tumbled 41 percent to 1.28 billion euros in 2003, yielding an operating margin, or operating profit as a percentage of sales, of 2.93 percent, down from five percent in 2002.
Compatriot Renault posted forecast-beating 2003 results on Tuesday and forecast profit margin growth in 2004 thanks to the success of its new Megane range and a hefty contribution from Japanese partner Nissan.
PSA remains the more profitable company after stripping out the effect of new accounting rules.
NEW PRODUCT HOPES
PSA says the launch of its Peugeot 407 large saloon, the small Peugeot 107 and the Citroen C4 will revive its fortunes later this year, though some analysts are sceptical since those models are not major profit-spinners.
To combat euro strength, PSA said it had taken out put options on the British pound to cover 80 percent of its United Kingdom sales and would buy more to cover all sales. It had also bought a put on the Japanese yen to cover all its sales in Japan.