Morningstar | Renault Reports 1Q Revenue Decline as We Expected, Tweaks 2019 Guidance; Maintaining EUR 90 FVE
No-moat-rated Renault reported a first-quarter automotive revenue decline of 5.5% to EUR 11.7 billion versus EUR 12.4 billion a year ago. Excluding a 2-percentage-point negative impact from currency translation, automotive revenue would have declined 3.5% year over year. Renault reported that volume and pricing contributed a decline of 4.7 and an increase of 0.3 percentage point, respectively, to revenue at constant currency. The French automaker discloses only revenue in the first and third fiscal quarters while full financial statements are published for the half- and full-year results. Currently trading at a 32% discount to our EUR 90 fair value estimate, the 4-star-rated shares of Renault look attractively priced relative to our forecast for revenue, cash flow, and returns on invested capital.Global volume in the first quarter declined 5.6%, partially offset by a 2% rise in Europe volume. Despite a 4.4% decline in Eurasia volume, revenue from Alliance partner AvtoVAZ, a Russian domestic brand, increased 7.1%. The Americas region saw a 5.3% decline in volume as Argentina plummeted 47.0%, partially offset by a 29.4% jump in Brazil. European volume, excluding France, remained healthy in the quarter, rising 3.1% over the first quarter of 2018, while volume in France was relatively flat. However, the Asia-Pacific and Africa-Middle East regions dropped 18.1% and 30.5%, respectively, due to a 42.0% plunge in Turkey and discontinued sales in Iran. Excluding Iran, Africa-Middle East volume would have been 1.8% higher.
Management tweaked full-year guidance with a global decrease of 1.6% in light-vehicle demand, down from "stable" prior guidance, due to Argentina, Turkey, and Russia. European demand is still expected to be stable, barring a no-deal Brexit. Despite volume headwinds, management confirmed its 2019 group operating margin guidance of "around" 6%. Renault expects to have positive automotive operational cash flow but as usual provided no specific numbers.
Renault is an automobile manufacturer. Co.'s activities have been organized into two main business sectors, in more than 120 countries: Automotive and Sales Financing. Co. designs, develops and sells passenger cars and light commercial vehicles. Following the acquisition of Romanian carmaker Dacia and Samsung Motors' operating assets in South Korea, Co. has three automotive brands: Renault, Dacia and Samsung. RCI Banque, Co.'s captive financing arm, finances sales of the Renault, Renault Samsung Motors (RSM) and Dacia brands, and, in Europe, the Nissan and Infiniti brands. In addition to these two activities, Co. has equity investments in the following two companies: Nissan and AVTOVAZ.
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