(Bloomberg) — Renault SA raised its outlook for the year as the struggling French automaker sought to draw a line under a costly withdrawal from Russia that led to a first-half loss.
The manufacturer expects group operating returns of more than 5%, up from a previous goal of 3% as new models and better pricing improve profitability, Renault said Friday. The worse-than-expected net loss of 1.36 billion euros ($1.4 billion) stemmed from a 2.2 billion-euro writedown on the value of its Russian operations.
“We are now able to absorb the most serious shocks,” Chief Executive Officer Luca de Meo said during a presentation, noting that the company still has work to do to catch up with competitors.
The better prospects for the year may see de Meo achieving a 5% mid-decade profitability target years in advance.
The shares rose as much as 5.3% in early Paris trading, trimming losses since the start of the year to 5.9%.
While the results surpassed expectations by many measures, the company remains “a work in progress” compared to other automakers, RBC analyst Tom Narayan wrote in a note.
Like rivals, Renault is benefiting from selling fewer vehicles at higher prices along with its own revamped portfolio that includes the Megan and Arkana E-Tech models. Renault stuck to its previous forecast that chip shortages will shave production by around 300,000 this year. Vehicle sales dropped nearly 30% to around 1 million during the period due to the retreat Russia, which was its second biggest market, and an inability to produce some vehicles due to a shortage in components.
Renault’s improved margin of 4.7% for the first half still falls well short of the double-digit result reported Thursday by bigger European mass market competitor Stellantis NV for the same period.
What Bloomberg Intelligence Says:
Renault’s 1H operating margin of 4.7% — a 160-bps beat, despite exiting its profitable Russian business — and raised full-year margin guidance (by 200 bps to 5%-plus) increases our optimism for a 50% uplift to 2022 consensus Ebit. The 2H outlook is strong on easing supply constraints and pent-up demand, though 2023 downside risks include recession concerns, falling asset prices and waning consumer confidence.
— Michael Dean, BI automotive analyst
The carmaker also upgraded its prediction for automotive operational free cash flow for the year to more than 1.5 billion euros, a big jump from the previous “positive” guidance.
Renault made an early 1 billion-euro repayment of state-backed pandemic loans and plans to write a similar check in the second half, pledging to reimburse the entire loan by the end of 2023 “at the latest.”
As part of the shift to EVs, the carmaker is planning to carve out electric and combustion-engine businesses, having promised to give details in the fall.
The move would be aimed at regaining lost ground to rivals Volkswagen AG and Stellantis. Renault relies heavily on the flagging European market and on Japanese partner Nissan Motor Co., which is also emerging from a difficult period.
(Adds shares and analyst comment from fifth paragraph.)
More stories like this are available on bloomberg.com
©2022 Bloomberg L.P.
