Fiat Chrysler Q3 earnings marred by Europe, Asia

October 30, 2018 14:59 CET
UPDATED: Oct 30 21:08 CET – adds reaction, details

MILAN — Fiat Chrysler Automobiles reported higher earnings for the third quarter despite losses in Europe and Asia.

Adjusted earnings before interest and tax (EBIT) rose 13 percent to 1.995 billion euros, the company said in a news release Tuesday.

Sales rose 9 percent, above expectations, helped by higher shipments of the new Jeep Wrangler and Cherokee models and the new RAM 1500 pickup.

Net profit in the quarter was down 38 percent, due to a 700 million euro charge for estimated costs related to diesel emissions disputes in the United States. The charge does not represent an agreed settlement nor is an admission of liability, FCA said.

FCA has been in intensive settlement talks with the U.S. Justice Department, California and lawyers for owners after the government sued the company in May 2017 contending it illegally used software that led to excess emissions in 104,000 U.S. diesel vehicles sold since 2014.

The company confirmed its operating guidance for the full year. However, its forecast for net cash was reduced to between 1.5 billion to 2.0 billion euros from around 3 billion euros.

FCA reported its highest North American profit margins to date and resurgent profit in Latin America. In Europe and Asia, however, results turned to a loss.

• Download full FCA third-quarter results in PDF format, above right.

FCA’s operations in Europe were hit by the transition towards tougher emissions tests which became mandatory from the start of September. CEO Mike Manley said he saw significant upside for Europe in future.

North America accounted for 97 percent of profit in the quarter and operating profit margins in the region rose to 10.2 percent from 8.0 percent last year as a shift to sell more trucks and SUVs continued to pay off.

However, the over-reliance on North America worried some. “This is now a one region story, unless one believes other parts are ripe for a turnaround,” Bernstein analyst Max Warburton said. “While the U.S. delivered spectacularly, the news from elsewhere is not encouraging.”

Fiat Chrysler’s sales in Asia tumbled 26 percent, and operations in the region fell to a 96 million-euro loss as Manley works on repositioning the Jeep brand in China while battling competition from domestic brands and a broader slowdown in auto sales. The Jeep Grand Commander, built specifically for China, has struggled and dealers have been forced to offer discounts.

Fiat Chrysler’s goal of doubling profit over the next five years rests squarely on Jeep’s ability to expand in the world’s largest automotive market. Manley, who is also trying to strengthen the dealer network in China, said he expects to start seeing results by the second quarter of next year.

Maserati loss

Chinese market weakness hit sales of luxury brand Maserati, which gets 50 percent of its profit from China. The brand’s margins fell to 2.4 percent from 13.8 percent last year.

Manley said he expects progress at Maserati in the second half of next year, adding the product remained competitive but was plagued by issues related to how it was positioned and managed.

Latin America was the only other bright spot, where Brazilians have been snapping up enough Jeep Compass SUVs to offset a downturn in Argentina. Ebit in the region jumped 41 percent. Analysts expect Latin America’s largest economy to grow with the presidential election of conservative lawmaker Jair Bolsonaro, who has pledged to rein in the deficit and boost economic growth.

The automaker promised to pay 2 billion euros in extraordinary dividends using proceeds from the sale of its Magneti Marelli parts unit. FCA last week agreed a deal to sell Marelli to Japan’s Calsonic Kansei for 6.2 billion euros.

It’s the first dividend since FCA was formed in 2014, a move that fulfills a pledge made by late CEO Sergio Marchionne.

Manley said the Marelli sale put the Italian-American company in the strongest position since its formation in 2014, and made its liquidity position comparable to peers. The deal also reaffirmed his commitment to deliver on FCA’s strategy to 2022 as an independent company, Manley said.

“Closing this transaction puts us in a much stronger position … our aim is to complete that five-year plan, deliver on our commitments as an independent (company),” he said on a call with analysts, when asked about any future merger plans.

The special dividend comes on top of ordinary dividends of 20 percent of earnings that the company has already pledged to pay starting early next year. Both still need to be approved by the board and shareholders.

Reuters and Bloomberg contributed to this report

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