PSA Turns Red- US-FOREX.US
The glass is half full for PSA. France’s biggest carmaker, PSA Peugeot Citroen, swung to a loss on Wednesday, highlighting tough market conditions until 2010. Yet investors remained positive on the stock based on a higher-than expected debt reduction and positive cash flow, a sign the company is managing its finances well.The carmaker posted a net loss of 962 million euros for the first half of the year, compared with a profit of 733 million euros a year ago. On top of its net loss, PSA also said it expects its car market in Europe to fall by around 12% in 2009 and to start seeing an improvement by the end of 2010.In February, PSA Peugeot Citroen and compatriot rival Renault each received 3.0 billion euros in credit lines from the French government. And Paris launched a scrapping incentive program to get drivers to trade their old cars for new models. But the company said these initiatives have had only a mild positive effect on the business. Gaetan Toutlemonde said, however, a higher-than expected debt reduction overshadowed the bad news. PSA managed to reduce debt by 900 million euros and it will now find it easier to retain its debt at 1 billion euros by the end of the year and not at 2.0 to 2.5 billion euros as some expected, Toutlemonde said.”PSA Peugeot Citroen’s first-half results reflect the impact of adverse markets, which were only partially mitigated by the benefits from performance action plans and new model launches,” said Chief Executive Philippe Varin. “Our priority has been to ease our financial constraints by strengthening the group’s liquidity.”The company got rid of its Chief Executive in March and it has been cutting jobs in a bid to tackle the dramatic fall in demand. It has also been cutting production and inventories sharply to be in line with consumer demand.
Shares of PSA Peugeot Citroen
rose 9.8%, or 1.81 euros , to 20.22 euros in Paris partly aided by a rally in the automotive sector triggered by Daimler’s surprisingly good outlook and also after Morgan Stanley said PSA’s net financial position is “significantly better” than forecast.”PSA generated 470 million euros of positive free cash flow in the half versus our estimate of more than 700 million euros of cash burn. Free cash flow was driven by a 2.1 billion euro reduction in inventory. They cut far more inventory than we expected – making the auto loss shortfall more palatable, in our view,” said a note by Morgan Stanley analysts. “PSA’s long-term challenges to improve its business remain, and current profits remain depressed – but financial distress is evaporating rapidly,” the investment bank added.PSA is not the only carmaker under stress. Other carmakers have posted hefty losses this week. Nissan posted a quarterly loss of 16.5 billion yen ; while Honda avoided a quarterly loss, it posted a 96% fall in profits on Wednesday. German carmaker Daimler also posted an operating loss of 1.1 billion for the second quarter. Shares of BMW
rose 3.8%; while Volkswagen was up 0.7% in Frankfurt on Wednesday. Renault
rose 6.2% in Paris.
Thomson Reuters contributed to this article.