July 23, 2019 / 8:42 AM / 4 months ago

UPDATE 1-France's Faurecia holds course in 'tougher than expected' auto market

* Shares surge higher after reassuring update

* Faurecia sticks to its 2019 financial goals

* Stronger net cash flow figures (Adds analyst comment and further details)

By Laurence Frost and Gilles Guillaume

PARIS, July 23 (Reuters) - French auto parts maker Faurecia said it maintained first-half profitability despite a China-led decline in auto production, sending its shares sharply higher on Tuesday.

The maker of automotive seating, interiors and emissions control technology stuck by its 2019 goals after net income rose 1% to 346 million euros ($387 million) in January-June as revenue dipped 0.2%.

While a global auto-market downturn is punishing manufacturers and suppliers that are heavily invested in electrified and autonomous vehicles, Faurecia’s business is proving more resilient. Rival suppier Continental cut its full-year goals on Monday.

“The first half of the year was tougher than expected,” Chief Executive Patrick Koller said, citing “significantly lower production volumes” in China, where Faurecia plans further capacity reductions after closing seven facilities this year.

Faurecia shares surged 8.5% in early session trading, leading an auto-sector rally, after it said first-half operating income slipped just 0.4% for an unchanged 7.2% operating margin. Its positive net cash flow rose 3.9% to 257 million euros.

The cash-flow and operating performance underscored a “solid set of first-half results”, Jefferies analyst Philippe Houchois said. Faurecia’s maintained 2019 goals “should be perceived positively in light of Conti’s profit warning”, he added.

The reiterated guidance includes a margin of 7% or better and net cash flow of at least 500 million - assuming a 4% decline in global auto production for the full year.

The interiors business, which accounts for almost one-third of group sales, limited the revenue decline to 1.8% in an auto market that shrank 7%, Faurecia said. Divisional profitability rose 0.2 percentage points to a 6.2% margin.

Sales fell 3.7% at the seating division, Faurecia’s largest, with the end of supply contracts to PSA Group in Spain and Daimler in Alabama. PSA is Faurecia’s biggest shareholder with a 46.3% stake.

$1 = 0.8936 euros Reporting by Laurence Frost and Gilles Guillaume; Editing by Sudip Kar-Gupta

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