By Gilles Guillaume
PARIS (Reuters) - French carmaker Renault <RENA.PA> reported an 11.8 percent drop in first-quarter revenue on Wednesday and predicted the European market would contract 5 percent this year, a downward revision of its previous forecast.
Revenue for the first three months dropped to 8.27 billion euros (7 billion pounds) on a 4.7 percent fall in global deliveries to 608,455 vehicles, the company said in an emailed statement.
Renault said it expected the French and European auto markets to fall 5 percent, a month after it had predicted a regional contraction of between 3 and 5 percent.
"The European market is tough and uncertain," Renault's sales chief, Jerome Stoll, said during a conference call with analysts and reporters. "But we believe it's not far from the bottom."
Renault and its European mass-market peers have been badly hit by a prolonged collapse in demand for new cars as the euro zone has seen mounting unemployment and economic uncertainty. The market is heading for its sixth straight annual decline in 2013 to a two-decade low.
But the French carmaker expects its sales decline to slow in the second quarter, Stoll said, helped by a series of new models including the Captur, Renault's entry in the compact crossover category in which sales are still growing.
Despite growing stocks of unsold vehicles, which increased to 72 days' supply as of March 31 from 65 at the end of 2012, Renault reiterated its full-year goal of achieving a positive automotive operating margin and free cash flow.
"We struggle to see how this business can be break-even," Credit Suisse analyst David Arnold said in a note, adding that the bank saw "nothing to change our cautious view on Renault".
(Additional reporting by Laurence Frost; editing by Jane Baird)