Renault Cuts Full-Year Forecast, Blaming Weakening Economies

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© Reuters. Renault Cuts Full-Year Forecast, Blaming Weakening Economies© Reuters. Renault Cuts Full-Year Forecast, Blaming Weakening Economies

(Bloomberg) — Renault SA (PA:) 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% to 4%, 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%, below previous estimates for 6%.

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.

Video Address

The warning comes after Bloomberg News reported that 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 Co. The French automaker owns 43% of the Japanese company, which is smarting from slumping U.S. sales and aging vehicle models.

European car sales declined 1.6% 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% drop, with Germany the only major market to record a gain.

Renault’s third-quarter sales fell to 11.3 billion euros ($12.6 billion) from 11.5 billion euros 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% this year, valuing the company at 16 billion euros.

(Updates with CEO comments in third paragraph)

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