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Tue, Feb 06, 2007 - Page 10 News List

Nissan shares drop on news of annual profit downturn


Nissan Motor shares plunged by more than 8 percent yesterday after the Japanese automaker warned of the first drop in annual profits under its legendary chief executive and one-time savior Carlos Ghosn.

Nissan closed down ?126, or 8.35 percent, at ?1,383, off a low of ?Y1,363, after the group said net profit was now expected to slide by over 11 percent in the year to next month.

The warning came as Nissan, which is 44 percent owned by France's Renault, reported a 22.6 percent slump in net earnings in the quarter to December.

"Although the slowdown in Nissan's earnings and the possibility the company might miss its full-year targets were already expected, the scale of the downward revision surprised the market," said Credit Suisse analyst Koji Endo.

He described the profit-warning as "a Ghosn shock" and cut his investment recommendation on Nissan by two notches to "underperform" from "outperform."

Atsushi Kawai, analyst at Mizuho Investors Securities, said investors were concerned that Ghosn's ambitious growth targets "did not have much basis."

"Selling pressure on the stock looks unavoidable in the near term," he added.

Ghosn, who joined Nissan in 1999 and was credited with saving it from near bankruptcy, admitted on Friday that Nissan was "in a performance crisis."

"We have a weakness. We have to recognize it and we have to act on it. But fundamentally the company is healthy," he told reporters.

Ghosn, whose downsizing at Renault earned him the nickname of "Le Cost Killer," said he would unveil emergency measures in April to address the slump.

Nissan slashed its full-year to March net earnings target to ?460 billion (US$3.8 billion) from ?523 billion previously, which would mark an 11.2 percent drop from the preceding year's realized ?518.1 billion.

"We think the company's downward revision reflects not just changes in the external environment but also the collapse of its overly bullish targets," JP Morgan auto analyst Takaki Nakanishi said.

"If the company has indeed stretched itself to the breaking point, then we doubt that cost-cutting alone will be enough to fix the problem," Nakanishi added.

The company's net earnings fell to ?104.4 billion in the three months to December, the third quarter of the fiscal year, as revenue rose 1.8 percent from a year earlier to ?2.34 trillion.

The setback at Nissan came as rivals Toyota and Honda continued to make great strides in the US with their fuel efficient vehicles.

Ghosn has been credited with saving Nissan from near bankruptcy but has recently reduced the amount of time he spends running the Japanese company. In April 2005 he also took the helm of French partner Renault.

Analysts said Nissan's share price could rebound when Ghosn unveils his plans in April to reverse the profit slide.

"The company has an opportunity to improve its profitability to some degree if CEO Carlos Ghosn plays his trump cost-cutting card," JP Morgan's Nakanishi said.

"However, we think Nissan would have a hard time sustaining growth without initiatives that restore its products' competitive appeal," he said.

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