European auto suppliers post stronger Q3 results

ERJ staff report (AN)

Paris (Reuters) -- European auto suppliers posted upbeat third-quarter results today as the effect of government stimulus schemes took hold, but shares wilted on a sense of growing uncertainty about prospects in 2010.

The world's largest maker of air bags and seat belts, Autoliv, swung to a profit after a loss-making year while French auto parts manufacturer Faurecia said it was optimistic about sales prospects for its second half.

Later, fellow French car parts maker Valeo upped its production forecast for the second half after posting a third quarter net income of 4 million euros ($5.96 million), following three consecutive quarterly losses. Valeo expects net income near break-even for the second half.

Sweden's SKF, the world's biggest bearings maker, also delivered an upbeat report. Earnings fell less than expected and it offered the first signs that demand was likely to pick up during the fourth quarter.

Yet shares in all three companies dropped during the session, reflecting what analysts said were doubts over the prospects of firms that do much of their business in Europe, where stimulus measures were among the strongest.

Outlook worries

"We'll certainly see profits improve in Q4, 2009," said Michael Tyndall, an auto sector analyst at Nomura in London. "But what are companies going to say at the end of the year? They're all going to say we're worried about the outlook."

He said there would be a drop-off effect next year from the expiration of stimulus programs for the car industry in the world's major economies -- but it would be far from uniform.

"The outlook for growth in the U.S. is positive, single-digit growth," he said. "The Chinese market is very difficult to read, but chances are that it will continue to grow strongly."

"It's in the European region that we've seen some of the most generous stimulus programs, the classic case being Germany," he said, adding that firms SKF, Faurecia and Autoliv were all heavily exposed to the European car market.

"This is where they make most of their profits, by virtue of the fact that the euro is so strong," he said. "But the truth of the matter is that no-one has a really strong conviction about what the outlook is like for 2010."

Volkswagen AG, which reports its third quarter results on October 29, said it had a "very good" third quarter and it sees the struggling Russian car market rising in the long term. Germany, however, would be hard-hit by the end of that country's version of cash for clunker programs, company executives said.

'Little visibility'

Faurecia raised its sales forecast for the second half to a 5 percent drop from a 10 percent drop, saying clunker incentives helped brighten the situation in Europe and the United States.

It added that it sought to reach cash break-even during the second half. Its shares closed down 6.28 percent in Paris.

Sweden's SKF, a bellwether for the manufacturing sector which owes roughly a third of its business to the car industry, posted a quarterly pretax profit of $99 million, beating expectations by a good margin. Shares in Stockholm-listed SKF closed down 3.97 percent.

For Sweden-based Autoliv, which does most of its business in Europe and the United States, the quarter marked a return to profitability with the company predicting a 10 percent increase in organic sales during the fourth quarter. Autoliv shares closed down 2.12 percent.

From Automotive News (A Crain publication)