February 26, 2019 / 6:39 AM / 22 days ago

PSA picks Peugeot for U.S. return as rides record profit

PARIS (Reuters) - PSA Group’s Peugeot lineup will lead a return to the United States after an absence of almost three decades, as the French carmaker seeks to expand beyond Europe.

Paris-based PSA will also launch the Citroen brand in India and revive Opel sales in Russia as it pursues a 50 percent group sales increase outside its home region by 2021.

Europe now accounts for 80 percent of PSA’s global vehicle sales after its purchase of General Motors’ Opel-Vauxhall division in 2017.

The carmaker raised its medium-term profitability outlook on Tuesday after posting record sales and earnings for 2018. But the guidance and revenue disappointed some investors, sending its shares lower.

Under Chief Executive Carlos Tavares, PSA has begun a long-promised return to North America - after an absence of almost three decades - by deploying its car-sharing operations in Seattle and Washington D.C.

The renewed U.S. sales push will be supplied by PSA plants in Europe and China, leaving it vulnerable to any new tariffs on imported vehicles, Tavares said. Washington is in talks with Beijing and Brussels on new trade deals and has threatened to slap duties on European cars.

“I’m going to wait for the current negotiations to give us more visibility on the tariffs,” Tavares said.

Rather than rebuilding a traditional dealer network from scratch, the group has identified a “creative and disruptive way to distribute our cars”, Tavares added, without elaborating.

Opel’s return to Russia may include some manufacturing at the PSA Kaluga plant, southwest of Moscow, the group said.

Strong sales of the Peugeot 3008 and 5008 SUV models and the acquisition of Opel-Vauxhall have helped to build on Paris-based PSA’s steady recovery from near-bankruptcy in 2013-14.

A PSA Group logo is seen behind a car displayed during French carmaker's news conference as they announce the company's 2018 results at their headquarters in Rueil-Malmaison, near Paris, France, February 26, 2019. REUTERS/Christian Hartmann

Sales rose 19 percent in 2018 from a year earlier to a record 74.03 billion euros (£63.86 billion) but fell short of the 74.76 billion euros predicted by an Infront Data analyst poll.

The miss knocked the carmaker’s shares 3.1 percent lower by 1538 GMT, paring their 22 percent gain so far this year.

But recurring operating income beat expectations, jumping 43 percent to 5.69 billion euros for a 7.7 percent profit margin.

RENAULT CONTRAST

PSA’s record earnings and confident tone contrasted with domestic rival Renault, which reported lower 2018 sales and profit earlier this month.

After turning the French brands around, Tavares is applying the same discipline to Opel, which recorded a 4.7 percent margin on sales of 18.31 billion euros, its first full-year profit since 1999, and contributed positive cashflow of 1.35 billion euros towards the group’s 3.5 billion euros.

PSA said its 4.5 percent “all-weather” margin goal for 2019-2021 period would now include the less profitable Opel unit, effectively raising the benchmark.

Chief Financial Officer Philippe de Rovira said the conservative target covered the possible scenario in which Britain leaves the EU in a no-deal “hard Brexit”, as well as other potential market setbacks.

Bernstein analyst Max Warburton, who applauded PSA’s results, nonetheless described as “meaningless” a margin goal trailing more than three points behind current profitability.

“We don’t entirely understand PSA’s approach to guidance,” Warburton said in a note to clients, while reiterating his “outperform” rating on the stock.

Slideshow (3 Images)

The legacy Peugeot, Citroen and DS brands reported a record 8.4 percent margin, up 1.1 percentage point as stronger pricing and production-cost savings overpowered currency and raw-material setbacks, while sales rose 18.9 percent.

PSA increased its dividend to a proposed 78 euro cents from last year’s 53 cents, while raising its payout ratio to 28 percent from 25 percent, starting in 2020.

Reporting by Laurence Frost; Editing by Sudip Kar-Gupta; Editing by Kirsten Donovan and Alexander Smith

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