Renault lowers revenue goal after weak first half

PARIS -- Renault lowered its outlook for full-year revenue after first-half profit was hit by weakening vehicle demand in Europe and an earnings collapse at alliance partner Nissan.

Net income slumped by more than half to 970 million euros ($1.1 billion) in January-June as revenue fell 6.4 percent to 28.05 billion ($31.3 billion), Renault said in a statement on Friday.

Operating profit dropped 14 percent to 1.65 billion euros ($1.8 billion).

"Given the degradation in demand, the group now expects 2019 revenues to be close to last year's," Renault said, abandoning an earlier pledge to increase revenue before currency effects.

Operating margin declined to 5.9 percent from 6.4 percent. Renault kept its forecast for a full-year operating margin of 6 percent.

Nissan’s performance cut Renault’s profit by 21 million euros ($23 million) in the first half, after contributing 805 million euros ($896 million) a year before. Renault holds a 43 percent stake in the Japanese automaker.

Nissan on Thursday doubled the number of jobs it plans to eliminate to 12,500 and unveiled new production cuts. It reported a 99 percent drop in first-quarter profit and an operating margin of 0.1 percent, blaming sales incentives and over-expansion under former Chairman Carlos Ghosn.

Citi analyst Raghav Gupta-Chaudhary flagged a lower-than-usual 258 million euros ($287 million) in joint purchasing savings for Renault. "We thought this would be weak in light of the well-documented difficulties with the alliance," he said.

Renault blamed falling sales in France, as well as Turkey and Argentina, for a 7.7 percent revenue drop at its core automotive business, whose profit margin slid to 4 percent from 4.5 percent.

Vehicle sales outside Europe slumped 14 percent in the first half, while European volumes were roughly flat.

Operating free cash flow also suffered, coming in at a negative 716 million euros ($797 million) as investment jumped by 742 million euros ($826 million) to 2.91 billion euros ($3.2 billion.)

Renault reiterated a pledge to deliver positive full-year cash flow.

The automaker is counting on new models such as the latest Clio, higher prices and cost-cutting measures to reach its profit targets in the second half, as well as its "fighting spirit," CEO Thierry Bollore said in the statement.

A broad-based downturn has rattled the sector, prompting profit warnings and compounding challenges for Renault and Nissan as they struggle to turn the page on the Ghosn era. Ghosn is now awaiting trial in Japan on financial misconduct charges he denies.

The alliance between Renault and Nissan has been teetering following Ghosn's arrest in November.

Renault Chairman Jean-Dominique Senard has pushed for a merger Nissan did not want and upset the Japanese partner further by not informing it that it was in talks to combine with Fiat Chrysler Automobiles. Those talks have collapsed after the French government made it clear it wanted Nissan to support the Renault-Fiat deal before entering an agreement.

Bollore, speaking on a conference call with analysts on Friday, said there are no ongoing talks with Fiat Chrysler and "it’s a pity."

The tensions within Renault-Nissan come as the auto sector is facing a slump in Chinese volumes, uncertainty regarding new rules on emissions in Europe and Brexit. France and Germany are also considering phasing out government incentives to buy new cars.

Renault's domestic rival PSA Group defied the downturn with a record 8.7 percent profit margin unveiled on Wednesday.

Reuters and Bloomberg contributed to this report