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By Noah Barkin and Madeline Chambers
PARIS, July 24 (Reuters) - Europe's second-largest carmaker PSA Peugeot-Citroen on Wednesday beat market forecasts with its first-half results and nudged up this year's margin target for its autos division.
The company, one of the few bright spots in the European auto sector this year, said its first-half net profit slipped 4.1 percent to 985 million euros, comfortably above a consensus forecast from a Reuters poll of analysts of 892 million euros.
PSA, which until now has been calling for an operating margin in its key autos division of 4.8 to 5.0 percent in 2002, also said it was now officially targeting the top end of that range.
"Taking into consideration the results of the first half, we are now targeting an operating margin in the auto division of five percent and overall operating profit of 2.9 billion euros," the company said in a statement.
It also reiterated its objective of selling 3.25 million vehicles this year.
Under its Chairman Jean-Martin Folz, the French automaker has discovered an unexpected flair for design which has drivers paying premium prices for flashy new models like the sleek Peugeot 307 and bubble-shaped Citroen C3.
At 0928 GMT, PSA shares were up 1.09 percent at 41.65 euros, outperforming the DJ European Auto Stoxx Index , which was down 2.1 percent.
PSA shares were the top performer on the blue chip French CAC-40 index in 2001, with a rise of 18.3 percent. They have retreated 14 percent this year, in line with the European sector.
"These results are very encouraging," said Adam Collins, autos analyst at Schroder Salomon Smith Barney, who has an "outperform" rating on the stock.
"We are encouraged by cash flow developments, and they are saying they can achieve the higher end of their previous guidance, despite market conditions that are worse than previously expected."
OUTPERFORMER
Sales of new cars in western Europe, PSA's most important market, have declined 4.5 percent so far this year amid weak economic conditions, according to the European auto association, a trend most experts expect to continue.
However, PSA has withstood the weakness and gained market share, helped by its range of popular new vehicles, while competitors with ageing product line-ups, such as Europe's biggest carmaker Volkswagen and domestic rival Renault , lose out.
The question now is how long PSA's good fortune will last.
"Peugeot has gained from a hiatus in Renault's product range which has aged considerably," said Merrill Lynch auto analyst Stephen Reitman.
"That has created a window for Peugeot which it has exploited. But now we are moving into the (Renault) Megane phase, with its ambitious targets, and this will increase the degree of competition."
Renault unveiled its new Megane earlier this month. It will compete in the important compact segment, which accounts for over one third of all European car sales.
PSA also said operating profit rose 8.7 percent to 1.524 billion euros in the first six months of the year on sales of 27.37 billion.
The company has suffered from tough conditions in some difficult markets, including Argentina and Brazil.