Renault 2013 Profit Surges 59% on Dacia Budget Brand Growth

Feb 13, 2014 3:21 am ET

(Updates with CEO’s comment in 12th paragraph.)

Feb. 13 (Bloomberg) -- Renault SA, Europe’s third-largest carmaker, said 2013 operating profit jumped 59 percent as low- cost models from the Dacia brand pushed delivery growth and the company lowered costs. The stock rose the most in five weeks.

Earnings before interest, taxes and one-time items increased to 1.24 billion euros ($1.69 billion), beating the 1.06 billion-euro average estimate of 11 analysts surveyed by Bloomberg. Revenue rose 0.5 percent to 40.9 billion euros. The company today forecast growth in sales and operating profit in 2014 and positive free cash flow at the carmaking unit.

The forecast is “as much as we could have asked for so early in the year,” Mike Dean, an analyst at Credit Suisse, said in an e-mail. “This is way ahead of what” competitors such as PSA Peugeot Citroen or General Motors Co. “will achieve in Europe this year.”

Renault, which owns 43 percent of Japanese carmaker Nissan Motor Co., is pushing into emerging markets to make up for a two-decade low in industrywide European demand. The Boulogne- Billancourt, France-based carmaker outlined a target today to reach 50 billion euros in annual revenue and a return on sales of more than 5 percent in three years. The goal is underpinned by cost cutting, including a workforce reduction and wage freeze that unions agreed to a year ago.

Stock Jumps

Renault rose as much as 5 percent to 69.20 euros, the biggest intraday jump since Jan. 7, and was trading up 4.6 percent at 9:19 a.m. in Paris. The stock has surged 60 percent in the past 12 months.

“The commitment of all Renault employees enabled the group to meet its 2013 objectives in an unfavorable environment,” Chief Executive Officer Carlos Ghosn said today in a statement. “Strengthened by this result, the group can begin the second part of its strategic plan with confidence.”

Cumulative free cash flow in the past three years totaled 2.5 billion euros, exceeding a target of 2 billion euros, Renault said in the statement. The carmaker also set a goal of generating annual positive free cash flow in the next three years.

The medium-term profit and cash goals “look a bit generic, and not that different from what they had targeted earlier on,” Erich Hauser, a London-based analyst at International Strategy & Investment Group who recommends buying Renault stock, said by phone. “It makes you wonder what’s going on.”

Chinese Venture

The company said earlier this month that it plans to double its market share in India. Renault received approval in December from regulators in China, the world’s largest auto market, to build its first plant in the country.

The Chinese factory, which will produce sport-utility vehicles starting in 2016, is being set up in a joint venture with Wuhan-based Dongfeng Motor Group Co. The partner also builds vehicles with Peugeot, Europe’s second-biggest carmaker, and is considering buying a stake in the Paris-based competitor.

The Dongfeng-Peugeot collaboration won’t affect Renault’s plans to work with the Chinese carmaker, Ghosn said today on a conference call with analysts.

Renault was the only carmaker of the top five sellers in Europe to report groupwide sales growth in the region last year, according to figures from the ACEA trade group. The increase was the result of the Dacia nameplate’s 23 percent surge, which more than made up for a 1.5 percent decline at the namesake Renault brand.

Delivery Gains

The company’s global sales, including the Dacia and Samsung brands, rose 3.1 percent last year to 2.63 million cars and light commercial vehicles. The French carmaker said last month that industrywide demand in France and across Europe will increase 1 percent in 2014, with deliveries worldwide rising 2 percent.

Renault and Yokohama-based Nissan raised their goal for combined savings from cooperation by 7.5 percent in January to “at least” 4.3 billion euros by 2016 by intensifying joint projects in development, manufacturing, purchasing and human resources.

Nissan contributed 1.5 billion euros to earnings last year, Renault said today. Currency effects cut operating profit by 619 million euros, Chief Financial Officer Dominique Thormann said on the conference call.

--Editors: Tom Lavell, Chad Thomas