Valeo first-quarter margin beats forecast

French car parts group Valeo reported a better-than-expected first-quarter operating margin amid intense speculation about its future while it is in talks with an investment fund about a possible buyout.

"The group continues to examine the indications of interest which it has received. The market will be informed at the appropriate time of any eventual developments," Valeo said in a statement today after a board of directors meeting.

It said the first-quarter operating margin had increased to 3.0 percent from 2.3 percent, while a survey of six analysts by Reuters showed an average expectation of 2.4 percent.

"In line with its outlook, Valeo anticipates a drop in European and North American automotive production in the second quarter," Valeo said.

"For the full year, the group expects an improvement in its operating margin due in particular to increasing automotive production levels and ongoing rigorous management," it added.

Operating income rose to $107.1 million (79 million euros) from 61 million euros a year earlier. Sales slipped 0.5 percent to $3.60 billion (2.64 billion euros).

Exchange rate fluctuations such as the lower dollar had a negative impact of 0.5 percent on sales.

Valeo said the operating income figure reflected a reduction in net research and development expenditure and selling and administrative expenses and the favorable outcome of unindentified commercial litigation.

Gross operating income, which the company calls its gross margin, fell 4.6 percent to $539.4 million (396 million euros) for the quarter from 415 million euros in the first quarter of 2006.

Gross operating income was 15.2 percent of sales, down from 15.8 percent a year ago. Valeo said the rise in raw material prices pulled down that figure by 2.2 percentage points.

As of March 31, Valeo's net financial debt was $1.32 billion (966 million euros), compared with 1.07 billion euros a year ago. The debt-to-equity ratio was 54 percent, down by 5 percentage points.