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Peugeot Loses More In 3rd Quarter As Rivals Return To Profit

Investors Expect Action From Varin At November 12 Meeting
Solid Profitability Not Expected Until Second Half Of 2010
“Eurocentricity”, Capacity Use, Faurecia Need Sorting

Peugeot-Citroen disappointed investors with its third quarter performance, and the consensus remains that it will lose more than €1 billion in 2009.

Peugeot sales in the 3rd quarter “only” declined by 7.7 per cent to €11.78 billion compared with the same period of 2008. This looks good though compared with an 18.9 per cent fall in the 2nd quarter and the 24.9 per cent sales shellacking in the first three months of 2009.

Analysts said sales improved thanks to the various European scrapping incentive schemes, but this is unlikely to have done much for profits as competition for sales led to hefty discounting. Peugeot, and its compatriot Renault, only report profits at the half and full year stages and remain mum after the first and third quarters about the state of the bottom line.

After reporting first half results, Peugeot-Citroen said it expected to lose between €1 billion and €2 billion in 2009. It recorded a net loss of €962 million in the first half, compared with a net profit of €733 million in the same period last year before the industry was engulfed in a sales crisis. Since then, the company has led analysts to believe this loss will be nearer to €1 billion than €2 billion

According to Bernstein Research analyst Max Warburton, Peugeot’s third quarter sales could have been better, but it was being prudent with production, keeping output below sales in an effort to boost margins.

It still managed a hefty loss.

Up to €300 million
“We estimate that Peugeot (and its Citroen sibling) lost between €200 and €300 million in its auto business in the third quarter,” Warburton said.

Warburton said Peugeot will do better during the fourth quarter.

“Its market share trends in the third quarter – positive in both passenger cars and LCVs – should allow it to generate decent sales for the rest of this year. However, given the starting point, we believe it may take until the second half of 2010 to solidly return to profit,” Warburton said.

At the Frankfurt Car Show in September Peugeot-Citroen CEO Philippe Varin told a meeting sales in 2009 were going to be less bad than previously feared, with company market share boosted by the new Peugeot 3008, 206 and Citroen C3 Picasso.

Waiting for Varin
Nomura International said Peugeot’s sales in the latest quarter missed investor consensus estimates by around four per cent largely due to a disappointing performance outside of Europe, and “a softer mix in terms of products, geography and pricing”.

Nomura analyst Dorothee Cresswell said investors are waiting CEO Varin’s strategy presentation scheduled for November 12 for guidance about Peugeot’s ideas for the future, which will have to address what she called the company’s Eurocentricity, the low capacity use rates of its European factories, and possibly the sale of its Faurecia subsidiary.

Bernstein Research’s Warburton said Peugeot appears to be a profit laggard in a fast improving European industry, and is also looking to the November 12 meeting for guidance.

“Mr Varin, the floor is yours. We see many positives for Peugeot with its strong LCV business and record of strong product development effectiveness. However, as probably the only European auto to lose money in Q3, Peugeot may need considerable effort and surgery to return to previous margin levels,” Warburton said.

Neil Winton – November 1, 2009

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