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By Rebecca Harrison
PARIS, April 23 (Reuters) - Europe's largest listed car parts maker Valeo posted a smaller-than-expected 10 percent rise in first-quarter net profit on Wednesday, but saw its shares rise in early trade as investors cheered improvement in its operating margin.
Valeo said in a statement that net profit in the first three quarters climbed to 22 million euros from 20 million previously, well below a consensus forecast for 37 million euros.
But tough cost-cutting helped core profits resist a wobbly European car market. Operating profit rose to 109 million from 98 million, good for an operating margin of 4.5 percent, compared with 3.8 percent in the prior year period. The figure was just shy of a forecast for operating profit of 114 million euros.
"You shouldn't look at the net profit, which was hit by restructuring charges," said Patrice Solaro of Julius Baer.
"The market is focused on improvement in the operating margin, which was hoped for, but not a given."
At 0720 GMT, Valeo stock stood 3.2 percent higher at 24.91 euros, outperforming a 1.2 percent rise in the DJ Stoxx European autos index . The stock has underperformed the index by nearly 15 percent this year.
Sales dipped four percent to 2.44 billion euros but edged up 1.5 percent at constant exchange rates.
Valeo said sales of its windscreen wipers, headlights, hi-tech parking gadgets and other car parts outpaced the market in Europe and Asia but not in North America, where it is still turning around a loss-making subsidiary.
COST CUTS
The Paris-based firm said it had reduced the number of its industrial sites by eight during the first three months of the year as it reined in activity in line with lower car production.
"The group thus has the means to continue to progress in 2003," it said in a statement, giving no firm forecasts for the year.
Valeo said its order intake in the first quarter represented three times sales, reinforcing its internal growth prospects.
Belt tightening at the firm pulled it back to profit in 2002 after problems at its U.S. Rochester unit pounded it to a loss the previous year, and the firm has pledged further gains this year.
Chairman Thierry Morin, who spearheaded the firm's turnaround plan, has said that an operating margin of six percent in 2003, compared to five percent last year, would be "a good target", but he does not necessarily expect revenues to grow this year.
Most analysts doubt Valeo will swell its margin to six percent, but still expect it to improve on last year's figure.
Valeo is one of the first firms in the auto sector to report first-quarter numbers.
Its smaller rival Faurecia said earlier this month its sales had jumped eight percent in the first three months of 2003 and confirmed a goal to boost its operating margin quarter on quarter this year, despite a faltering car market.