Economy, Auto

Peugeot Profits Up, Despite China Dip

Peugeot Profits Up, Despite China DipPeugeot Profits Up, Despite China Dip

French automaker PSA Group shrugged off a drop in Chinese sales and an aging lineup to deliver a record first-half profit, as Chief Executive Carlos Tavares made progress on his turnaround plan for the maker of Peugeot, Citroen and DS cars.

PSA shares surged 8.5% after the company said net income more than doubled to €1.21 billion ($1.33 billion) despite a decline in revenue and deliveries, soundly beating market expectations, Reuters France reported.

“This was a very strong result and Tavares continues to make significant headway in transforming the company,” said Evercore ISI analyst, Arndt Ellinghorst, who has a “sell” rating on the stock.

The closely watched core automotive division increased profit by one-third to €1.3 billion, lifting its operating margin to an all-time high of 6.8% from 5%.

Since emerging in 2014 from a brush with bankruptcy and a government-backed bailout, PSA has been pushing an international expansion to reduce its dependence on the European mass market.

But the Paris-based carmaker fell behind archrival Renault in global deliveries for the first half, as sales of its aging model lineup fell almost 20% in China and lost market share in a recovering European market.

Pricing, nonetheless, improved for all three brands, PSA said, and sales are expected to gain momentum from a product offensive getting underway, with eight model launches this year.

“PSA is seeking to cut its China operating costs by 10% annually under a plan agreed with shareholder and joint venture partner Dongfeng,” Chief Financial Officer Jean-Baptiste de Chatillon said.

The CFO also pledged €200 million in extra savings this year, as PSA cuts wage costs toward a targeted 11% of revenue, from 12% last year.

“These action plans are not over,” he said. “We’re continuing to right-size our fixed costs.”

PSA shares rose 8.5% to €13.56 in Paris at 0816 GMT. The results beat analysts’ expectations of €796 million in net income and €1.01 billion in auto division profit, based on the median of 12 estimates in a Reuters poll.

PSA, which has flagged openness to mergers and acquisitions, frustrated some analysts by issuing neither 2016 guidance, nor changes to mid-term profitability goals it has already beaten.

Earlier this month, Peugeot signed an agreement with Iranian auto conglomerate SAIPA to roll out the production of three Citroen models in Iran in 2018.