Peugeot Citroen Profit Rises, Keeps Margin Target

Europe's second-biggest car marker PSA Peugeot Citroen on Wednesday maintained its operating profit margin target for 2008 as first-half earnings rose more than expected on the back of cost cuts.

The company reiterated it expected a slowdown in western European markets of around 4 percent this year with a more difficult second half.

Car sales are down in Europe amid fragile consumer confidence, record fuel prices, rising interest rates and fears of a car market plunge in the wake of the financial crisis that began in the U.S. subprime mortgages sector.

The operating margin for the first half was 3.6 percent, against the average forecast of 10 analysts of 3.3 percent and versus 2.7 percent last year.

Recurring operating income was up 32.4 percent to 1.115 billion euros against an average expectation of 10 analysts polled by Reuters of 1.034 billion.

The company expected a negative impact of higher raw material prices of 300-350 million euros in 2008 versus 2007.

The French group kicked off European car earnings, with larger German rival Volkswagen and smaller peer Fiat of Italy due later on Wednesday and Renault on Thursday.

Several analysts have slashed earnings estimates for European car makers, with Morgan Stanley this week cutting its 2008 estimates by 10 percent and those for 2009 and 2010 by 25-30 percent due to the weak market and high raw materials.

Lehman Brothers, Credit Suisse and Citigroup also see trouble ahead for the car makers, just as several profitability programs were starting to show some benefits.

PSA, in which the Peugeot family still owns a 30 percent capital stake and holds 45 percent of the votes, is in the second year of its Cap 2010 plan drawn up by Chief Executive Christian Streiff to boost margins by selling more cars in more countries.

PSA Peugeot Citroen shares have lost about 40 percent of their value this year, underperforming the Dow Jones Stoxx auto index which shed over 27 percent.