FCA ups '16 guidance; provides no update on fed probes
Fiat Chrysler Automobiles NV on Wednesday increased its guidance for the year as it reported a profit of 25 percent to $352.8 million (321 million euros) in the second quarter, but failed to provide any update to federal investigators probing the company’s operation in the United States.
During an 80-minute call with financial analysts, neither CEO Sergio Marchionne nor Chief Financial Officer Richard Palmer talked about company-confirmed investigations by the U.S. Securities and Exchange Commission and U.S. Department of Justice into its reporting of monthly sales. The automaker announced sweeping changes in its sales-reporting methods Tuesday.
Financial analysts who were allowed to ask questions on the call did not ask about the investigations or sales-reporting changes. The investigations and changes presumably were initiated by a lawsuit earlier this year by dealerships owned by Illinois-based Napleton Automotive Group. The suit alleges the company, among other claims, offered dealers money to report unsold vehicles as sold.
Fiat Chrysler spokesman Shawn Morgan on Wednesday had no comment on an update on the investigations, or a late-Tuesday report from Automotive News that some of Fiat Chrysler’s U.S. dealers received subpoenas to provide documents or testimony to a federal grand jury in Detroit as part of a probe into the company’s sales reporting practices.
A legal representative for the Napleton dealership group declined to comment Wednesday on the case or if his client had been subpoenaed.
The automaker in a statement last week confirmed it would “cooperate fully” with the “SEC investigation into the reporting of vehicle unit sales to end customers in the U.S.” It went on to say it “will cooperate fully” with “inquiries into similar issues” recently made by the Department of Justice.
It’s believed federal regulators are probing the company to determine if it participated in securities fraud.
On Tuesday, the North American-based operations FCA US LLC detailed its sales reporting practices and announced a new methodology that will focus on being more transparent and consistent when reporting consumer and fleet sales.
Under the new process, its impressive sales streak of 70-plus months would have ended in September 2013 after 40 months, according to an explanations and analysis released by the company since 2011.
The company did not admit any wrongdoing on Tuesday, citing its “review of industry practice has not revealed a standard reporting practice among OEMs in the U.S., although we believe that FCA US’s competitors have used broadly similar approaches in compiling monthly sales data.”
There are no clear rules or best practices for how automakers report U.S. monthly sales, and processes can differ between automakers and countries.
Marchionne on Tuesday reconfirmed that the automaker’s manufacturing operations in the United States would be “de-carred” — stop producing passenger cars — by the first quarter of 2017.
The company recently announced it would cease production of the Dodge Dart compact sedan in Illinois in September, followed by the Chrysler 200 midsize sedan in Sterling Heights in December. The moves are part of a shift for its U.S. manufacturing to focus on hot-selling pickups and SUVs.
“By the time we finish with this, hopefully, all of our production assets in (North America) if you exclude Canada and Mexico from the fold, all those U.S. plants will be producing either Jeeps or Ram,” he said. Production of the Dodge Viper in Detroit is not included in that time frame, as the company recently announced that production would continue through the 2017 model year.
Following the production shift, which Marchionne has said is expected to be completed by early 2018, the company expects to increase its adjusted North American profit margins — 7.9 percent in the second quarter — to be more in line with its largest crosstown rivals.
“There will be no passenger cars that will be produced in the U.S., and therefore, our expectation is that that concentration will give us the possibility to get to very close to (the 12.1 percent profit margin by GM in the second quarter),” he said. “They were exceptional results … I think that we have every expectation that after this realignment we should be getting very close if not dead-on (with) those numbers.”
The company upped its 2016 guidance on net revenue to greater than $123.1 billion (112 billion euros) from more than $120.9 billion (110 billion euros); adjusted earnings before interest and taxes to more than $6 billion (5.5 billion euros) from greater than $5.5 billion (5.0 billion euros); and adjusted net profit raised to more than $2.2 billion (2 billion euros) from $2.1 billion (1.9 billion euros).
Excluding one-time charges, Fiat Chrysler said adjusted operating profit for the quarter was up 16 percent to $1.79 billion (1.63 billion euros), roughly in line with an analyst consensus from Reuters of 1.64 billion euros.
“Overall we had a good quarter,” said Palmer during a call with financial analysts and news media Wednesday morning.
Earnings before interest and taxes for the automaker decreased 14 percent from a year ago to $1.17 million (1.1 million euros) primarily due to recall charges of more than $455 million (414 million euros) related to an expansion of a callback of defective Takata air bag inflators in May. It also took a $116 million (105 million euros) hit for realigning existing capacity to better meet market demand for pickup trucks and SUVs.
Earnings were driven by strong performances in North America, Europe and the company’s components businesses.
Adjusted earnings for the second quarter in North America were about $1.54 billion (1.4 billion euros), a slight increase from $1.43 billion (nearly 1.4 billion euro) during the same time from 2015.
North America was followed by Europe, where adjusted earnings significantly increased from $62.7 million (57 million euros) to $157.21 million (143 million euros), as well as components which grew to $122 million (111 million euros) from $105.5 million (96 million euros).
Shares on the New York Stock Exchange closed Wednesday down 4.3 percent to $6.70.
S&P Global Market Intelligence cut its 12-month target price $1 to $8 over “concerns about the company's ability to invest sufficiently in the future as a stand-alone company,” according to a Wednesday research note from equity analyst Efraim Levy.