French auto supplier Valeo says its overall business grew through the first nine months of 2005, but higher material costs cut earnings by more than 50 percent.
Like most other major auto suppliers, Valeo has been hammered by steep increases in the prices of steel, nonferrous metals and plastic resins, Remy Dumoulin, Valeo director of investor relations, told Automotive News Europe.
Paris-based Valeo expanded its total operating revenue by 7 percent to E7.48 billion for the first three quarters compared with the same period a year ago. Net income was E103 million, down 53.4 percent from 2004.
The company posted 2005 third-quarter earnings of E30 million on total operating revenue of E2.38 billion, compared with earnings of E38 million on revenue of E2.14 billion during the same quarter last year.
In a statement released October 20, the company said: "Valeo expects to strengthen its market share in an environment of ongoing raw material price inflation."
The supplier's performance drew mixed reactions from analysts.
Thomas Aney, an analyst with Dresdner Kleinwort Wasserstein in Frankfurt, said: "Valeo reported organic growth, which was definitely a positive sign. It was not an easy market to grow in."
But John Lawson, analyst for Citigroup in London, wrote in a report that Valeo's underlying growth is "still pedestrian."
Both Aney and Lawson praised Valeo's strong free cash flow, about E122 million. Free cash flow is the amount of cash a company has left after it has paid all of its expenses, including investments.
"In the third quarter we generated a fair amount of cash and reduced our net debt by E122 million," Dumoulin said.
Free cash flow is "the main key of improving financial strength and making acquisitions," said Aney.
Valeo makes transmissions; climate control, engine cooling, lighting, electrical and security systems; wipers; motors and actuators; switches; and electronics. About 75 percent of its sales are in Europe.
Valeo ranks No. 8 on the Auto-motive News Europe list of the top 30 European suppliers.