French car maker Renault conserved cash in 2011, beating analyst profit expectations even after the Japanese tsunami and European market slump hit earnings.

Renault recorded 1.08 billion euros (896 million pounds) in automotive free cash flow, the company said on Thursday, exceeding its 500 million euro target as net income dropped 39 percent to 2.09 billion.

Renault coped with the different crises throughout the year, Chief Executive Carlos Ghosn said in a company statement.

Renault maintained its objective of achieving positive cash flow in 2012, against a European market decline it estimates at 3-4 percent for the full year.

Group sales rose 9.4 percent to 42.63 billion euros in 2011, Renault said.

The results beat analysts' expectations of 41.4 billion euros in sales and net income of 2.01 billion, based on the average of estimates compiled by Thomson Reuters.

Depending on the timing of a European market recovery in late 2012 or 2013, the core auto business could begin contributing to dividend payments so far driven by Renault's Nissan and Volvo holdings, Ghosn told analysts on Thursday.

While the operational performance surpassed estimates only narrowly, Renault's cash flow and balance sheet were much better than we or the consensus had expected, Credit Suisse analysts said in a note to clients.

Renault's free cash flow shows Peugeot the way home, they added.

PSA Peugeot Citroen
, Renault's larger domestic rival, on Wednesday put its profitable Gefco logistics business up for sale after net debt ballooned 170 percent to 3.36 billion euros. PSA also burned through 1.6 billion euros of cash in 2011

as the auto division swung to a 92 million euro full-year loss.

Renault's core manufacturing business held up better, with operating income falling 17 percent to 330 million euros, or 0.8 percent of sales - compared with a divisional operating margin of 1.1 percent in 2010.

The French automaker, based in the Paris suburb of Boulogne-Billancourt, also benefited from a 23 percent increase in the profit contribution from 43.4 percent-owned Japanese affiliate Nissan <7201.T>, to 1.33 billion euros.

Renault protected its cash flow by sharply drawing down stocks of unsold vehicles in the fourth quarter to 52 days' worth of sales from 65 days. Such adjustments to working capital accounted for 58 percent of the cash flow figure.

Net debt fell for a third straight year to 299 million euros, its lowest since 1998 and a 1.14 billion euro improvement over the year that came mainly from operating cash flow.

(Reporting by Laurence Frost; Editing by James Regan and Christian Plumb)