Renault’s profit warning sets off tremors across auto industry
French automaker has already taken a hit in the first half of 2019 from poor results at Nissan
Renault set a gloomy tone for the European automotive sector by slashing its outlook for revenue and profit, saying weakening economies are weighing on car sales and tougher rules on emissions have increased costs.
The French carmaker’s shares on Friday fell the most since the arrest last year of former boss Carlos Ghosn. Renault reduced its financial guidance for 2019, citing deteriorating results in markets including Turkey and Argentina, and spending on research and development.
Interim chief executive Clotilde Delbos, who took over a week ago in a management shakeup, has called for a strategy review and told the staff the company needs to “make some choices” on spending. Relations are strained with struggling partner Nissan Motor and analysts are raising concerns about its balance sheet and dividend.
“This profit warning comes at a time of major instability at Renault and its partner Nissan,” Evercore ISI analyst Arndt Ellinghorst wrote in a note. “Investor worries will more likely intensify.”
Standard & Poor’s on Friday put Nissan ratings on a negative watch, saying the global auto industry could face a challenging business environment for the next one or two years, with sales remaining sluggish in major markets like North America and China.
Car sales have also been weak in Europe, with the European Automobile Manufacturers Association saying this week the decline in the nine months through September was 1.6 per cent to 12.1 million.
Renault issued the revised guidance on Thursday ahead of a board meeting on Friday and quarterly sales scheduled to be published next week. Revenue will decline by 3 per cent to 4 per cent this year, after it previously forecast sales would be close to last year’s level. Group operating margin will be around 5 per cent, below previous estimates for 6 per cent.
The company said third-quarter sales fell and cash flow should be positive in second half of the year, but may not be for the whole of the year.
“We assume a significant cut to the dividend and believe Renault may need to consider selling assets including Nissan shares to defend its balance sheet,” Jefferies analyst Philippe Houchois wrote in a note.
Renault already took a hit in the first half of 2019 from poor results at Nissan. With a 43 per cent stake in the Japanese company, the French carmaker has long depended on dividends to bolster earnings. Nissan is forecasting its worst operating profit in a decade, hurt by an aging product line-up and a slide in vehicle sales in the US and Europe.
Nissan also replaced its chief executive and one key question is whether the new management will take more drastic measures to improve profitability.
Renault’s Ms Delbos earlier told employees that measures were needed to get the carmaker back on track.
Updated: October 18, 2019 05:29 PM