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Renault keeps cash goal as Europe woes hit profit

French car maker Renault said it would work harder to conserve cash, after Europe’s auto-market slump hit first-half profit at the core automotive division.

Renault’s manufacturing arm stayed in the black with an 87 million-euro ($107 million) profit, down 35 percent, even as it consumed 200 million euros of cash, the company said on Friday.

“It’s very encouraging to see that Renault remained above break-even in the autos division during this tough six-month period,” said London-based Credit Suisse analyst David Arnold.

Renault shares were 4.9 percent higher at 0805 GMT. The stock has risen 26 percent so far this year, almost doubling the 14 percent gain by the 15-member Stoxx Europe autos and parts index.

Still, Arnold said, “we see little chance that Renault can make up the delta” between its first-half performance and a full-year goal of positive operating cash flow.

Auto investors are focused on cash amid a severe European downturn that led PSA Peugeot Citroen to post an 819 million-euro first-half loss. Unlike its larger domestic rival, Renault offers low-cost models under its Dacia brand that have benefited from resilient demand for cheaper cars.

“In a difficult and uncertain environment, Renault remains on track to meet its 2012 objective,” Chief Executive Carlos Ghosn said in the company’s statement.

Meeting the cash-flow target will not be easy, his chief financial officer acknowledged.

“Clearly that will require some improvements or a reversal to working capital requirements,” Dominique Thormann told analysts on a conference call.

So-called working capital sucked up 444 million euros in the first half, reflecting larger inventories of vehicles, parts and raw materials. Automotive net debt surged to 818 million euros from 299 million at the end of December.

While reiterating Renault’s pledge to increase global deliveries this year, the CFO also introduced a note of caution. The 2012 number will be “slightly above last year’s or close to it,” he said.

Group sales slid 0.8 percent to 20.94 billion euros.

The first-half auto-division profit amounted to 0.4 percent of sales, compared with a 1.1 percent margin a year earlier.

Before one-time gains and charges, overall operating income fell 23 percent to 482 million euros, paring the group margin to 2.3 percent from 3 percent.

Net income attributable to shareholders fell 39 percent to 746 million euros, even after Renault’s stakes in Japanese affiliate Nissan and Sweden’s Volvo contributed 630 million euros, up 13 percent on the year.

The automaker, based in the Paris suburb of Boulogne-Billancourt, cut its full-year forecasts on July 11 to predict contractions of 6-7 percent for the European market and 10-11 percent for France.