(Bloomberg) -- Renault SA (PA:RENA) reported a bigger drop in third-quarter sales than analysts expected, as turmoil in emerging markets from Turkey to Iran cut into business and currencies faltered in several key countries.
The shares fell to the lowest in more than three years after the French carmaker said demand weakened in Turkey, Argentina and India, compounded by a pullout of Iran. Currency declines added to the carnage, including in Brazil and Russia. The company also cut its market outlook for China, where a slowing economy is dragging down car sales and Renault recently upped its presence.
The results highlight Renault’s unique dependence on developing countries compared with other major carmakers. The company, based in Boulogne-Billancourt, counts Russia as its biggest market outside of France, and China is now fourth. That’s placed Renault in a tricky position as trade tension between the U.S. and China, as well as President Donald Trump’s activist foreign policy, rattle smaller economies. Renault had to stop doing business in Iran, and deliveries to Turkey halved in the three months to September.
This quarter was “not an easy one,” Chief Financial Officer Clotilde Delbos told analysts during a conference call. Still, she said, the company is seeing improvement in Russia and Brazil, “which are offering us great opportunities.”
While Renault only sold 72,100 vehicles in China last year out of a total of 3.8 million autos, it recently created a joint-venture with Jinbei and Huasong there to sell commercial vehicles. The company now sees the world’s largest automotive market growing by 2 percent this year, versus a previous forecast of 5 percent, it said Tuesday in a statement.
Emission Rules
The carmaker also warned that new emission testing rules known as WLTP that entered into force last month added uncertainty on European car demand for the rest of the year. The new regulation is putting pressure on prices as dealers have been seeking to sell cars that didn’t comply with the rules.
“The fourth quarter is still going to be impacted by WLTP,” Delbos said. “But I do not have any major concern for the underlying health, let’s put it that way, of countries like France, like Germany, and Spain.”
Renault stuck to annual forecasts for operating return on sales to exceed 6 percent and to boost comparable revenue, which rose 4.4 percent since the start of the year.
The shares were down 2.6 percent to 64.06 euros at 10:23 a.m. in Paris, after earlier falling to 62.27 euros, the lowest intraday since September 2015.
Carmaker shares have buckled under weaker market conditions and trade tensions in recent months, prompting Daimler AG (DE:DAIGn) and BMW AG to warn of lower profits.
A slowdown in China, the engine room for carmaker growth for a number of years, is adding to concerns for the sector that’s already struggling with the costly shift to electric and self-driving cars. Purchases of passenger vehicles by dealerships plunged for a third straight month during September, as deepening trade tensions with the U.S. unsettle consumers. Car sales are barely up for the year, leaving the industry facing the prospect of a first contraction in sales since at least the 1990s.
In Iran, where Renault sold almost 100,000 vehicles since the beginning of the year, deliveries were stopped as a result of U.S. sanctions, the company said. To compensate for that loss, the company is exploring new markets in Africa, including South Africa, Delbos said.
Sector Concerns
Revenue at Renault fell 6 percent to 11.5 billion euros ($13.2 billion), compared with a forecast of 12.2 billion euros of five analyst estimates compiled by Bloomberg. Excluding a drag from currency impacts from emerging-market economies like Argentina and Brazil, revenue fell 1.4 percent.
“Renault’s sales numbers were not too bad given where sentiment towards the space sits today,” Arndt Ellinghorst, a London-based analyst with Evercore ISI, said in a note. “However, they are also unlikely to result in any positive sentiment shift either -- an inconclusive start to earnings season.”
(Updates with CFO comments from fourth paragraph.)
