Fiat Chrysler Narrows Profit Gap -- WSJ
April 27 2016 - 3:04AM
Dow Jones News
Nearly all its operating profit, and two-thirds of its revenue
came from North America
By Jeff Bennett
Fiat Chrysler Automobiles NV narrowed the profit gap with its
Detroit rivals in the first quarter, drawing on continued momentum
for its Jeep sport-utility vehicles and Ram pickup trucks to more
than double operating margins in North America.
The Italian-U. S. auto maker has been increasing U.S. sales for
six years but failed to keep up with Ford Motor Co. and General
Motors Co. in the closely watched margin race. It earned EUR1.23
billion ($1.39 billion) in North America in the first quarter, or
nearly $2,200 per vehicle sold in the region, compared with EUR601
million a year ago. Revenue rose 6% in the region, pushing its
sales nearer to Toyota Motor Corp., the No. 3 new-car seller in the
U.S.
Fiat Chrysler posted a 7.2% margin in North America that was
behind the 8.7% booked by GM during the same period and topped the
6.7% reported by Ford in the year-ago first quarter. Ford hasn't
yet released results for this year's first quarter.
The operating margin performance answers industry observers and
rivals who have criticized Chief Executive Sergio Marchionne for
valuing market share growth over the bottom line.
During a conference call, executives said the company is off to
a good start this year, but didn't provide much insight on whether
the strength in North America would last. That uncertainty, along
with weakness in Asia Pacific revenues, pushed Fiat Chrysler shares
2% lower to $8.02 in afternoon New York trading on Tuesday
trading.
Fiat Chrysler said overall first-quarter net profit rose to
EUR478 million. The Italian-American car maker's net profit
represented a sizable jump from the EUR27 million generated during
the first three months of 2015, but those results excluded Ferrari,
which was spun off in January.
On an operating basis, the company earned EUR1.38 billion,
compared with EUR700 million for the same period a year earlier.
First-quarter revenue rose 3% to EUR26.6 billion compared with the
first quarter of 2015. Nearly two-thirds of that revenue came from
North American operations and nearly all of the operating
profit.
The strength in the U.S. has largely been built on Jeep, an
iconic brand that has sold SUVs for 75 years. The division is
benefiting from low gasoline prices. Its 5% U.S. market share
outperforms other light-truck brands: Land Rover, for instance, has
under 1% of the U.S. market, and GM's GMC truck lineup is 3%.
Mr. Marchionne, Fiat's CEO since 2002, started merging the
Italian auto maker with Chrysler in 2009 as the Detroit company was
in bankruptcy. In recent years, he has been searching
unsuccessfully for a merger with a bigger auto maker.
Of chief concern for potential suitors is Fiat Chrysler's debt.
Mr. Marchionne aims to cut indebtedness as part of his strategic
plan, but it is considered behind GM and Ford in terms of the
health of the balance sheet.
The company's net industrial debt minus cash on hand rose 31% to
EUR6.59 billion during the first quarter. Mr. Marchionne said
working capital expenditure increases, which was partially
responsible for the increase, will reverse in the second quarter
and net industrial debt would finish below EUR5 billion for the
year.
Fiat Chrysler earned EUR96 million in Europe, a market that
continues to recover from years of economic malaise. Most global
auto makers have struggled to make money in the region amid high
production capacity and price wars.
The auto maker posted a modest profit in its Latin American
operations despite a continued downturn in key markets, including
Brazil's 28% year-over-year volume decline. The EUR11 million
profit compared with a EUR65 million loss a year ago.
Asia and Pacific revenues slipped to EUR949 million from EUR1.51
billion as the auto maker shipped about half of as many vehicles at
it did the same period a year earlier. Fiat Chrysler made a modest
profit of EUR12 million, down from EUR65 million a year ago amid a
shift to local production of Jeep SUVs to sidestep hefty import
tariffs.
Write to Jeff Bennett at jeff.bennett@wsj.com
(END) Dow Jones Newswires
April 27, 2016 02:49 ET (06:49 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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