FCA boosts 2016 profit target as Jeep fuels Q2 rise
MILAN/DETROIT -- Fiat Chrysler Automobiles raised its 2016 profit forecast after earnings in the second quarter rose 16 percent on robust demand for Jeep SUVs.
Adjusted earnings before interest and taxes rose to 1.63 billion euros ($1.79 billion) from 1.4 billion euros a year ago, the Italian-American carmaker said in a statement on Wednesday. That compares with the 1.61 billion-euro average of 10 analyst estimates compiled by Bloomberg.
With a one-time charge of 414 million euros for Takata airbag recalls, unadjusted earnings fell 14 percent to 1.1 billion euros.
FCA said net income rose 25 percent to 321 million euros ($353 million) Total revenue dropped 2 percent to 27.9 billion euros ($31 billion).
The company increased its target of boosting full-year adjusted operating profit to more than 5.5 billion euros from its previous forecast of at least 5 billion euros.
Fiat Chrysler, under investigation over allegations it inflated U.S. car sales, has benefited from robust demand for Jeep SUVs and Ram pickups in North America, while a recovery in the European market helped bolster the company’s profit in the region.
Jeep deliveries surged 16 percent with gains in all regions.
The company's net industrial debt dropped by 1.1 billion euros to 5.5 billion euros.
FCA shares fell 2.5 percent to $6.81 as of 11:27 am ET. The stock has tumbled 27 percent this year, valuing the company at 8 billion euros.
N.A., Europe profits
The company said adjusted earnings before certain expenses (EBIT) in its North America region rose 4 percent to 1.37 billion euros. Revenue in the region improved 2 percent to 17.5 billion euros.
In Europe EBIT increased to 143 million euros from 57 million a year earlier as passenger car shipments jumped 13 percent to 292,000 and light van sales rose 16 percent to 175,000. Revenue was up 5 percent to 5.8 billion helped by the launch of the new Tipo compact car and higher van sales.
FCA broke even in Latin America.
The company's Maserati luxury sports car unit reported lower profit and declining vehicle sales, although volume in China recovered. The brand's global shipments fell by 16 percent to 6,912 with unit sales down 26 percent in North America, 17 percent in Europe but up 20 percent in China.
Maserati's EBIT fell 16 percent to 36 million euros, primarily due to lower volumes, along with higher industrial and commercial launch costs for the new Levante SUV and restyled Quattroporte sedan.
FCA's forecast for the rest of the year suggests a slowdown in the second half. FCA generated 3 billion euros in adjusted operating profit in the first half, a 43 percent surge from a year ago.
North America accounted for nearly 85 percent of FCA's quarterly profit but the automaker is bracing for slowing growth in the U.S. after years of expansion.
FCA is retooling several plants in the United States to boost production of more profitable SUVs and trucks, improve its model line-up and strengthen its finances before the U.S. market comes off its peak.
The carmaker has already made strides in narrowing the North American margin gap with larger rivals GM and Ford. Profit margins in the region rose to 7.9 percent in the quarter from 7.7 percent last year, compared with 12.1 percent for GM, but investors wonder if that momentum can be sustained.
In response to an investigation by U.S. authorities, the company on Tuesday said it will revise the way it reports figures in the country beginning this month. Under the new method, Fiat Chrysler’s streak of monthly U.S. sales gains would have ended in September 2013 rather than continuing through June.
In comments to analysts, FCA CEO Sergio Marchionne and CFO Richard Palmer only briefly referred to the company’s five-year restatement of its North American sales on Tuesday, indicating that its quarterly reports now reflect that methodology.
In other comments, Marchionne said:
- FCA will cease production of the Dodge Dart and Chrysler 200 in the U.S. by the first quarter of 2017 to convert those assembly plants over to build more high-margin Ram and Jeep branded vehicles. He added that the company has “made progress” in its efforts to secure a manufacturer to build replacements for those cars, but “we’re not in a position to announce anything.”
- North American margins, which were 7.9 percent for the quarter, could rival General Motors’ 12.1 percent range after the company completes its conversion of U.S. production capacity to Jeep and Ram products. He also asserted that the changeover, which will result in some downtime at affected plants, will help ensure UAW employment going forward.
- He believes that Jeep has “phenomenal” traction in China, given experience launching local production there of the Cherokee and Renegade, and the launch later this year of the replacement for the Jeep Compass. He said the automaker’s goal of selling 500,000 Jeeps in China by 2018 remains achievable.
- Ram maintained its pricing discipline during a brief incentive splurge by GM in the pickup segment. “We did not follow our competitor down that path,” Marchionne said.
- While recalls have been at high levels, efforts to limit future exposure by dealing with issues proactively are gaining momentum. “The whole house is tuned to a different level now, not just in terms of products in the marketplace, but also products that are in development,” the CEO said.
Larry Vellequette, Automotive News staff, Reuters and Bloomberg contributed to this report.
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