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By David Pearson
Of DOW JONES NEWSWIRES
VELIZY-VILLACOUBLAY, France -(Dow Jones)- French automaker PSA Peugeot-Citroen (UG.FR) Thursday raised its earnings guidance due to better-than-expected sales and unveiled a three-year EUR3.3 billion plan to improve profitability.
The company now expects to break even at the operating level in 2009, compared with previous guidance of a loss of about EUR1 billion.
At the same time, it said it expected to be cash-flow positive this year. Previously it had predicted a further cash outflow in the second half after a burning through EUR467 million in the first half.
The upbeat guidance, combined with news that the company had boosted production by 30% in the third quarter of this year compared to the same year-ago period, will certainly lead to earnings upgrades, said Jens Schattner, automotive analyst at Oppenheim Research. But it was unclear whether Peugeot's new strategy "will change long-term expectations."
Chief Executive Philippe Varin, in a presentation to analysts and journalists, unveiled a plan to close the profitability gap between Peugeot-Citroen and the best players in the industry. It relies heavily on cost savings and increasing volume sales into high-growth markets.
Peugeot aimed to achieve a gain of EUR3.3 billion in operating profit between 2010 and 2012, and the improvement would be linear, Varin said, although he admitted that the gap probably won't be closed completely by 2012. He said that 55% of the improvement would be wrung from production, development and overhead costs. A further 30% will come from sales and marketing efforts, and the remainder from sales into high-growth markets, notably China, Latin America and Russia.
The company estimated that there was a six-percentage-point gap between its operating margin and the average operating margin of the industry's five most profitable automakers: Honda Motor Co (7267.TO), Hyundai Motor Co. (005380.SE), Daimler AG (DAI.XE), Volkswagen AG (VOW.XE) and Fiat SpA (F.MI).
Peugeot-Citroen, Europe's second-largest car maker by volume after Germany's Volkswagen, is banking on a product offensive to entice customers into its showrooms, and presented a range of new vehicles to expand and rejuvenate its existing product lineup and grow market share.
It took the unusual step of showing a range of new models that would be rolled out over the next three years, including the car that will replace its popular 207 sub-compact range, new crossovers, high-end sedans and vehicles specifically designed for markets in China and Latin America.
Car makers are normally leery about showing models too far ahead of commercial launch, as it can prompt customers to put off purchases.
Chief Financial Officer Frederic Saint-Geours said the company saw a recovery in the European market--where Peugeot-Citroen derives the bulk of its sales and profit--in the second half of next year, and that the company's market share in the second half of 2009 should reach 14%. Varin said the European market likely would contract by up to 10% for all of 2010, however.
Varin said Peugeot was reducing its headcount through attrition and voluntary departures, and that there was no need for more radical measures at this stage.
-By David Pearson, Dow Jones Newswires; +33140171740, david.pearson@dowjones.com