Fiat Chrysler Profit Surges on Strong Sales of Jeeps, Pickups -- Update
April 26 2018 - 12:44PM
Dow Jones News
By Chester Dawson
DETROIT -- Fiat Chrysler Automobiles NV said Thursday its
earnings rose 60% in the first quarter on strong sales of its most
profitable vehicles, keeping its margins above rival Ford Motor
Co.
The Italian-American auto maker said it was on track to meet its
growth targets for the year, including a pledge to pay off its
rapid declining net industrial debt load. That would mark Fiat
Chrysler's full recovery after Chrysler's bankruptcy a decade ago
and a validation of the merger with Fiat.
"Over all, the indications are that the business is in good
shape," Chief Executive Sergio Marchionne said on a conference call
with analysts.
Fiat Chrysler's fourth-quarter net profit came to EUR1.02
billion ($1.24 billion), even as revenue fell 2% to EUR27 billion.
The company said its adjusted operating profit, which excludes
one-time items, grew 5% to EUR1.6 billion, which brokerage Evercore
ISI said was below a consensus forecast of EUR1.8 billion among
financial analysts.
The auto maker said the biggest drivers of its earnings growth
were higher net pricing and increased sales of high-profit margin
vehicles, particularly new versions of its Jeep Wrangler SUV and
Ram 1500 pickup truck. That boosted Fiat Chrysler's global margin
to 6% in the first quarter, up from 5.5% a year before and above
Ford's 5.2% margin. General Motors Co.'s margin was 7.2%.
Mr. Marchionne, who plans to step down early next year, said he
expects Fiat Chrysler will pay its off debt and move to a cash
positive position this year. The company is planning to announce a
new set of growth targets in June, but won't name Mr. Marchionne's
successor until sometime in early 2019.
The CEO said he was disappointed with a slow ramp-up in
production of the new Ram truck and Jeep Wrangly.
Higher-than-expected launch costs for those two core vehicles
dragged down profit in North America, its largest market. But Mr.
Marchionne said those difficulties were a temporary setback.
Fiat Chrysler's operating profit adjusted for one-time items in
North America fell 2% on the year to EUR1.21 billion in the first
three months, with launch costs alone hitting EUR300 million in the
quarter. But Mr. Marchionne characterized those costs as one-time
items and said the production difficulties were a temporary
setback.
The company's stock price rose 0.5% to $23.60 in early Thursday
afternoon trading on the New York Stock Exchange. Its shares have
more than doubled over the past year.
Fiat Chrysler first set 2018 targets four years ago, then raised
them in 2016. Those goals are for 2018 are revenue of EUR136
billion, adjusted net profit of between EUR4.7 billion and EUR5.5
billion, and net industrial cash of at least EUR4 billion.
Mr. Marchionne has said little about the new business plan
through 2022 due out this summer, but told analysts that rebuilding
Fiat Chrysler's businesses in China and Europe will be a priority
going forward.
Calling Europe the auto maker's "biggest challenge," the CEO
said that region would be "the single largest driver of the
financial repositioning" over the next four years. First-quarter
profit and revenue in Europe were unchanged from a year before, but
the company's sales volumes fell 2% on the year to 390,000
vehicles.
One of the biggest issues Fiat Chrysler faces in Europe is
financial penalties for failing to meet increasingly stringent
emissions regulations, which Mr. Marchionne said "need to be
avoided like the Black Plague."
China -- the world's largest car market -- also has been a weak
spot for Fiat Chrysler, with its market share falling below 1% in
the latest quarter. Mr. Marchionne blamed poor marketing and a
misunderstanding of what local buyers want from its Jeep brand. "We
overestimated the value of the American DNA to the Chinese market,"
he said.
The centerpiece of the company's rebuilding effort in China is a
new midsize SUV called Jeep Commander built specifically for the
local market. That vehicle will be a "litmus test" for the brand's
success, Mr. Marchionne said.
On Thursday, Fiat Chrysler confirmed its current full-year net
revenue forecast of EUR125 billion, adjusted net profit of EUR5.0
billion and net industrial cash of EUR4.0 billion. It said net
industrial debt on March 31 stood at EUR1.31 billion.
Max Bernhard contributed to this article.
Write to Chester Dawson at chester.dawson@wsj.com
(END) Dow Jones Newswires
April 26, 2018 12:29 ET (16:29 GMT)
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