The automaker stuck to its goal of increasing full-year operating profit on the back of higher sales and vehicle deliveries. The company said the European auto market recovery was stronger than foreseen. It predicted the market will grow by 3 percent to 4 percent this year instead of the 2 percent to 3 percent previously forecast.
Lower costs were the primary reason for the profit improvement, Chief Financial Officer Dominique Thormann said today at a press conference. "We have seen a significant increase in group profitability," Thormann said. "The improvement to our margin stems from a very firm cost control."
Earnings were helped by 412 million euros in cost reductions, including 200 million euros from purchasing. Logistics, research and development delivered a further 190 million.
Renault is cutting thousands of jobs, mainly in France, as it implements a 2013 union deal in pursuit of a 5 percent margin goal for 2016. Renault last year reduced its domestic workforce by almost 5,600 jobs to 48,550 as of Dec. 31.
Net income, which had been blighted by a 511 million euro writedown on Renault's Iran business a year earlier, rose to 801 million euros from 97 million. Automotive operating profit was 348 million euros, compared to 211 million in the first half of last year.
Renault's operating margin rose to 3.7 percent from 2.9 percent of revenue, which fell 3 percent to 19.82 billion euros, hurt by currency effects. Automotive contributed 18.7 million euros to revenue, a decrease of 3 percent. "This decline is primarily the result of an adverse currency impact," Renault said. "Despite an increase in registrations, the volume effect was also negative reflecting an adjustment in inventories of independent dealers."
Automotive free cash flow worsened to a negative 360 million euros from a year-earlier deficit of 31 million. The cash flow suffered as Renault increased its own inventories to 158,000 vehicles from 100,000 while cutting dealer stocks, ahead of the replacement of key models including the Renault Twingo and Dacia Sandero.
The run-out of older models also saw pricing weaken by about a percentage point against a mass-market peer average, sales chief Jerome Stoll said.
Renault reported "slightly lower sales and a less aggressive inventory management than what we had come to expect,"London-based ISI Group analyst Erich Hauser said. "What matters to us here is that the margin was materially better than expected and that Renault seems to be on track to hit its 5 percent margin target," Hauser said.