PARIS -- French auto part makers Faurecia and Valeo cheered investors with forecast-beating first-half profits buoyed by a car industry revival plus pledges of more growth, but said on Friday steel prices clouded the horizon.
Faurecia, 71.5 percent owned by manufacturer PSA Peugeot Citroen, wielded cost cuts to almost double net profit, and raised its sales forecast for the full year thanks to a stronger-than-expected European car market.
Valeo posted higher first-half profits on Thursday and pleased the market with a return to underlying sales growth after several quarters of falling revenues. It said lucrative new orders would bolster revenue growth, excluding acquisitions and exchange rate swings, by five percent in 2005.
The chiefs of both companies, who have slashed costs to restore profitability in recent years, said they aimed to keep swelling their operating margins this year, but cautioned high costs of raw material, particularly steel, would make life tougher in the second half.
"The Faurecia results are better than forecast and the sales target is more upbeat, mainly because the market has recovered more than expected," said Patrice Solaro at Kepler Equities, Another Paris-based analyst said Valeo's return to underlying sales growth in the second quarter was "a nice surprise".
But they both said high raw-material costs were a worry, with Faurecia Chairman Pierre Levi predicting they would lop "several tens of millions of euros" off operating profit this year, and Valeo's Thierry Morin said prices would remain high for another 12 months.
"The blue note is the rise in raw-material prices which could make improving margins in the second half more difficult," said one Paris-based analyst.
CAR MARKET RECOVERS
Faurecia said net profit in the six months to the end of June totalled 31.9 million euros ($39.12 million) versus 16.2 million a year earlier. Operating income rose to 200.9 million euros from 161.3 million and sales climbed 5.3 percent to 5.521 billion euros.
Faurecia also confirmed it aimed to improve its sales and operating margin in the second half versus 2003, even though it expected car production to be close to last year's.
"We are expecting growth close to zero, although that said, production in recent months has been good so perhaps we'll get a pleasant surprise," Levi told a news conference.
Total car sales in Western Europe stumbled 1.3 percent lower last year as motorists worried by a weak economy kept a close eye on their wallets, but demand has started to pick up this year and many experts expect a clear upturn in the second half.
Suppliers like Faurecia and Valeo have suffered in recent years as car makers battling sluggish markets and cut-throat competition try to save cash by paying less for parts. Both swung into the red and have been forced to slash costs.
Valeo, which is winding up a two-year revamp and is now on the prowl for acquisitions to bolster its sales, said it hopes to make a purchase in the electronic sector this year.