Fiat lowers 2013 profit target as quarterly earnings decline

Without Chrysler, Fiat would have lost $340 million in Q3

MILAN (Bloomberg) -- Fiat Group has lowered its profit target for 2013 as sales in Brazil slumped and losses in Europe persisted.

Full-year trading profit, or earnings before interest, taxes and one-time gains or costs, will miss an earlier forecast by as much as 13 percent, Fiat said today in a statement.

Third-quarter earnings on that basis fell 9 percent to 816 million euros ($1.12 billion).

"Fortunately for Marchionne, Fiat owns Chrysler," said Andrea Sianesi, associate dean at the Milan Polytechnic's business school. "Fiat used to depend on Brazil. Now it has to rely on North America as Brazil is slowing down."

CEO Sergio Marchionne has spent the past four years working to combine Fiat and Chrysler Group to create a global player with the scale to compete with Toyota Motor Corp., General Motors Co. and Volkswagen Group. The strategy is also designed to make Fiat less dependent on its mass-market businesses in Europe, where its deliveries declined 3 percent in September, and Brazil, where it posted an 11 percent drop last month.

Lowered range

Fiat forecast full-year trading profit in a range of 3.5 billion euros to 3.8 billion euros. That's below the company's previous range of 4 billion euros to 4.5 billion euros.

Third-quarter trading profit missed the 903 million euro average estimate of five analysts surveyed by Bloomberg News.

Sales rose 1 percent to 20.7 billion euros. Profit in Latin America tumbled 52 percent to 165 million euros, while the loss in Europe narrowed to 165 million euros from 238 million euros.

VW, Europe's largest carmaker, today reported third-quarter earnings that surged 20 percent. Profit from the Porsche car brand and tighter reins on spending helped the company exceed analyst estimates.

GM also beat expectations as redesigned pickups boosted earnings in North America.

Fiat owns 58.5 percent of Chrysler and Marchionne, 61, is seeking to buy the remaining 41.5 percent stake held by a UAW retiree health-care trust. The takeover has been delayed by a valuation dispute over the labor group's stake, and the trust is forcing an initial public offering of part of its holding, complicating the CEO's plan.

Chrysler profit

Chrysler reported today that third-quarter profit rose 22 percent on higher demand for Jeep Grand Cherokee SUVs and Ram pickups, helping Fiat increase net income 11 percent to 189 million euros. Excluding the U.S. carmaker, Fiat would have reported a net loss of 247 million euros ($340 million) in the quarter.

A merger with its U.S. unit would allow Fiat to tighten cooperation with Chrysler and its Dodge and Jeep nameplates and access the U.S. carmaker's cash reserves.

Fiat's net industrial debt increased 24 percent to 8.3 billion euros during the third quarter, the company said, forecasting that net debt at the end of 2013 will be in a range of 7 billion euros to 7.5 billion euros. The previous target was about 7 billion euros.

"Without the contribution from Chrysler, the combination of Europe, Latin America, Asia Pacific and even the profitable luxury brands cannot generate sufficient trading profit to cover the current level of financial expense," Harald Hendrikse, an analyst at Nomura in London, said in a report on Oct. 15.

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