Renault slashes outlook for revenue and profit this year

Renault SA slashed its outlook for revenue and profit this year as deteriorating economies weigh on auto demand and tougher regulatory standards increase costs.

The French carmaker sees 2019 revenue declining by 3 per cent to 4 per cent, after previously forecasting sales would be close to last year’s level, the company said in a statement after the market closed on Thursday. Group operating margin will be around 5 per cent, below previous estimates for 6 per cent.

The reduced guidance is mainly due to markets outside Europe, including Turkey and Argentina, and spending on research and development, interim chief executive officer Clotilde Delbos said on a conference call. Furthermore, “it’s still difficult to pass on the full extra costs” of regulation to customers, she added.

The shares fell almost 6 percent in US trading Thursday. Renault, which was scheduled to release quarterly results next week, issued the profit warning after market close in Europe.

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The warning comes just days after Delbos told employees that the company needs to re-evaluate the strategic road map put in place by former CEO Carlos Ghosn to reflect a change in the industry environment.

Renault confirmed the plan alongside the forecast cuts, saying the new management team is reassessing the “Drive the Future” mid-term targets unveiled in 2017.

“We need to make some choices,” Delbos said in a video address, highlighting Renault’s negative cash flow in the first six months of the year. “Unfortunately the situation hasn’t improved during the summer and we need to put Renault back on track,” she said.

Renault took a hit in the first half of 2019 from poor results at partner Nissan Motor. The French automaker owns 43 per cent of the Japanese company, which is smarting from slumping US sales and aging vehicle models.

European car sales declined 1.6 per cent to 12.1 million in the nine months through September, the European Automobile Manufacturers Association said this week. Spain led the decline with a 7.4 per cent drop, with Germany the only major market to record a gain.

Renault’s third-quarter sales fell to €11.3 billion ($12.6 billion) from €11.5 billion the previous year, the company said. Cash flow should be positive in second half of the year, but may not be for the whole of 2019.

Reducing the sales and profit target “is an important move to clear the way for a turnaround under the interim CEO, a weak first-half performance and a deteriorating macroeconomic outlook,” Bloomberg Intelligence analyst Michael Dean said in a note.

The shares have gained 0.6 per cent this year, valuing the company at €16 billion. – Bloomberg