Europe drives Fiat Chrysler profit hike
Fiat Chrysler Automobiles NV rode strong overseas sales and a robust performance by its Maserati brand to a better-than-expected first-quarter performance and a huge jump in stock value.
The performance out of Europe marks a welcome change for FCA, whose U.S.-based brands have carried the automaker’s profitability since the combined company emerged from the Great Recession. The first-quarter numbers suggest that is beginning to change, as new metal from the Fiat, Alfa Romeo and Maserati brands — especially SUVs — start appearing in showrooms.
The results offset a near-collapse in car sales. Like all manufacturers, FCA has been working to address declining sedan sales in a market that wants more SUVs and more pickups. FCA discontinued the Dodge Dart and Chrysler 200 small sedans last year, but its star brand Jeep, in the midst of model reshuffling, was not able to pick up the slack. U.S. Jeep sales dropped 11 percent in the first quarter of 2017.
The company reported Wednesday its first-quarter net profit was up 34 percent from the same period a year ago: 641 million euros ($698 million), bettering last year’s marks of 478 million euros ($520 million). FCA reaffirmed its financial projections for 2017.
Investors took notice: The company’s stock price jumped 10.5 percent by the end of the day to close at $11.65.
Chief Financial Officer Richard Palmer described the first three months of the year as “a good start to 2017.” Improved profit margins accounted for much of the improvement, with FCA shipping 1 percent more vehicles so far this year.
The financial advisory firm Evercore ISI wrote in a note to investors Wednesday, “In what was potentially a troublesome quarter for FCA, given weak U.S. sales and model change-over at Jeep, we believe results today are reassuring for investors. (The first quarter) demonstrates FCA’s ability to improve earnings in (North America) through mix, even on lower volumes and in a more competitive end market.”
Adjusted pre-tax earnings were a record for the quarter at 1.54 billion euros (nearly $1.68 billion), up 11 percent year-over-year. Earnings per share were 0.41 euros, or 45 cents. That’s up from 0.31 euros, or 35 cents, earned in the same period last year.
Maserati sales were up 75 percent over the same period a year ago. As a result, Maserati’s adjusted pre-tax earnings were nearly seven times that of a year ago at 107 million euros ($116.6 million).
Pre-tax earnings nearly doubled for the region made up of Europe, Russia, the Middle East and Africa; they hit 178 million euros ($194 million), up from 96 million euros ($104.63 million) a year ago. European figures rose on increased sales of vehicles in Fiat’s Tipo compact, as well as Alfa Romeo’s revamped Giulia sports sedan, Talento commercial van and new Stelvio crossover. Maserati’s growth came from its new Levante crossover, which sold well enough to offset losses for the Quattroporte and Ghibli.
That contrasts with North America, where adjusted pre-tax earnings were up only slightly from a year ago to 1.24 billion euros ($1.35 billion).
In a conference call with analysts Wednesday, FCA CEO Sergio Marchionne touched on a variety of topics:
■Asked by an analyst whether the Jeep and Ram brands were large enough and strong enough to stand on their own if spun off, Marchionne answered succinctly: “Yes.”
The CEO offered no more on the subject. His words, however, have stirred all kinds of speculation in the past. In March, PSA Group announced it would purchase General Motors’ European Opel unit. Marchionne speculated that it would only make sense for Volkswagen AG to consider a merger with FCA, thereby setting off a week of rumors. Nothing came of it.
■FCA’s Warren Truck Assembly Plant has a better than 50 percent chance to continue producing the current-generation Ram 1500 pickup through much of 2018 while the new Ram pickup begins production early next year at Sterling Heights Assembly Plant. The older model will supplement the supply of pickups until the newer version reaches full output. Warren will then begin producing the Jeep Wagoneer and Grand Wagoneer.
■Marchionne’s belief that self-driving technology company Waymo — which utilizes Chrysler Pacifica minivans — stands to be the self-driving industry leader if it gets full access to research and technology developed by Google. Waymo was spun out of Google in December. The Silicon Valley company announced this week it would take another 500 minivans from FCA for its work.
“What I think Waymo is capable of doing is leaning on all of the work Google has done on artificial intelligence,” Marchionne said. “If there is a point in time in the next couple of years when all the know-how and development work that has gone on inside Google is made available ... I think (Waymo is) going to be substantially ahead of anyone else out there. That’s the bet we’ve taken.”
■Company officials hope FCA’s discussion with the U.S. Environmental Protection Agency and State of California over air pollution regulations may be settled “in the next few weeks.” The parties have been been reviewing claims FCA has been using devices that cheated on emissions testing in its diesel-powered Ram 1500 and Jeep Grand Cherokee.
■The Alfa Romeo luxury brand could become profitable by the fourth quarter.
The company said it was on track to meet its yearly guidance: adjusted net profit of more than 3 billion euros ($3.26 billion) and adjusted pre-tax earnings of more than 7 billion euros ($7.62 billion).
Michelle Krebs, executive analyst with Autotrader, said despite Jeep’s drop last year, the brand is well-positioned moving forward.
“Their focus on Jeep is the right thing because the brand is so strong,” she said. “Despite the soft sales of late, it’s still a strong, iconic brand in a part of market that wants SUVs right now far more than cars. They are spending their money in the right place.”