FCA reports record Q2 earnings as Marchionne mourned
On the day legendary Fiat Chrysler Automobiles NV CEO Sergio Marchionne died, the transatlantic automaker reported second-quarter earnings climbed 39 percent — and that for the first time, the company had reached his longtime goal of more cash than debt.
The company said Wednesday its net profit grew to $882 million (754 million euros). FCA posted an 8-percent adjusted pre-tax margin in North America, a 0.4 percent decrease compared to a year ago. North America continues to deliver the bulk of the automaker's rising profits. Overall net profit for the company was down 35 percent.
FCA adjusted its full-year outlook for 2018 partly, lowering its projected revenue for the year from $146 billion (125 billion euros) to a range between $134 billion (115 billion euros) to $137 billion (118 billion euros), which new CEO Mike Manley attributed to the company's "first half results and the time needed to needed to work through a number of these performance issues."
Fiat Chrysler said its bottom line was helped by increased shipments to North America and Latin America. Shipments in North America rose 17 percent on strength of the all-new Jeep Wrangler, Jeep Cherokee and Jeep Compass, while Latin American volume rose 14 percent, powered by the Fiat Argo and Cronos.
FCA experienced a $114 million (98 million euros) loss in the Asia-Pacific region that includes China, which the company attributed to "lower shipments from the China JV as a result of market decreases, particularly in the SUV segments, and increased competition from domestic brands in China."
FCA's new CEO, Mike Manley, told investors in his first public remarks on Wednesday that China is an ongoing challenge the company is facing as he transitions to the top leadership position.
"Clearly when you step back and look at our results for the quarter, the biggest challenges we face, and frankly we're going to face to some extent for the balance of the year, are all focused in China," he said. "With duty changes that were announced, these particularly impacted Maserti, which resulted in a slow down of sales and shipments to dealers."
Manley took a moment at the top of his opening remarks to mourn Marchionne, directing a moment of silence in the fallen FCA chief's honor and noted that they worked closely together in his former role as the head of the company's Jeep and Ram brands.
"Personally having spent the last nine years of my life seeing or talking to Sergio almost on a daily basis, this morning's news is heartbreaking and I know that it will also be heartbreaking for many other people," Manley said of Marchionne's passing. "There's no doubt that Sergio was a very special unique man and there's no doubt that he is going to be missed."
Fiat Chrysler’s results came as General Motors Co. posted a $2.4 billion second-quarter profit on Wednesday.
In North America, FCA reported revenue increased by 9 percent to 17.5 billion euros ($20.5 billion) with 100,000 additional vehicle shipments from the same three months a year ago. FCA attribued the increase in North America to new Jeep Wrangler and Cherokee and the Jeep Compass, as well as Dodge Journey, which the company said was partially offset by decreased volumes of Ram heavy-duty due to a planned shutdown for retooling for next generation model.
In Latin America, revenue rose by about 5 percent to 2.1 billion euros ($2.46 billion) on 18,000 more vehicle shipments from the second quarter of 2017. FCA said the increase in shipments in Latin America was driven by new Fiat Argo and Cronos, as well as Pernambuco-built vehicles. The company said the increase was partially offset by discontinued vehicles.
The numbers were reported less than an hour after FCA's controlling shareholder, Exor SpA, confirmed the death of Marchionne, 66. He died in Zurich after the automaker's board called an emergency meeting to replace him with Jeep boss Mike Manley, a stunning conclusion to Marchionne's 14-year tenure at the helm of the Italian-American automaker.
Manley's remarks to investors about FCA's second-quarter earnings were his first public comments since he took over the company on Saturday. The report to investors represented a baptism by fire of sorts for Manley, 54, a Briton who managed FCA's profit-rich Jeep and Ram brands before what amounts to a battlefield promotion.
Marchionne led Fiat SpA of Italy before acquiring the former Chrysler Group LLC from the Obama administration's auto task force and combining them to form a global automaker. It is headquartered in London, incorporated in the Netherlands and operated out of regional hubs in Auburn Hills and Turin, Italy. He is credited with reversing the fortunes of the Italian icon and re-energizing Detroit's No. 3 automaker.
David Kudla, CEO of Grand Blanc-based Mainstay Capital Management LLC, said Manley will have to get to work right away to address production issues that have hampered sales of FCA's new Ram pick-up truck.
"FCA's choice of insider Mike Manley to replace ... Marchionne is in line with the company's vision for improving operational efficiencies and bolstering the Jeep and Ram truck product lines," Kudla said.
Second-quarter financial results from FCA and its two Detroit rivals, all scheduled to be released Wednesday, will be closely watched for signs of impact from President Donald Trump's decision to institute tariffs on foreign steel and aluminum — tariffs the automakers publicly oppose. In its second-quarter earnings report, General Motors Co. cited rising steel costs for lower profits.
"Auto, steel, and aluminum tariffs will be major headwinds for the auto industry moving forward," Kudla said. "The auto tariffs could lead to higher car prices and less jobs here in the U.S. Tariffs would ultimately be a tax on the American consumer, increasing the cost of cars."
Jeremy Acevedo, Edmunds Manager of Industry Analysis, said FCA's earrings will likely be buoyed by the fact that its sales were up 11.2 percent in the second quarter of 2018 compared to the same three-month period of 2017.
Driving FCA’s improving financial performance is the popularity of its Ram trucks and Jeep SUVs, cornerstones of the group's strategy over the next five years. Acevedo noted that Jeep brand sales were up 23 percent in the second quarter compared to the second quarter last year.
"FCA's boost in sales shows how far it's come in addressing the issues that plagued the company in 2017," he said. "FCA’s results show you can successfully pivot away from cars in favor of a strong offering of trucks and SUVs and have it work to your advantage. The redesigned Wrangler and Compass have been driving forces for FCA sales this quarter, and the new Ram 1500 is poised to further accelerate this momentum.”
Manley's remarks on the call with investors will be closely watched as industry observers try to get a sense of whether Fiat Chrysler will be run differently under his leadership than it was under Marchionne, a globe-trotting executive with a taste for black cotton sweaters and blunt talk.
Manley assumed the helm of FCA on Saturday after eight years heading the company's Jeep brand and nearly three leading Ram. He was named CEO in an emergency board of directors meeting in Italy, as the company disclosed that Marchionne's health had taken a serious turn due to complications after surgery.
Under Manley's leadership, sales at Jeep and Ram have surged, contrary to the anemic sales of Fiat and Chrysler. That's led some insiders to joke that Fiat Chrysler should be renamed Jeep Ram.
Manley joined the former DaimlerChrysler AG in 2000 as director of network development for DaimlerChrysler United Kingdom Ltd. He worked a stint as chief operating officer for the Asia region and was executive for the international activities of Chrysler outside of the North American Free Trade Agreement, where he was responsible for implementing agreements for distribution of Chrysler products through Fiat’s international network.
Manley, a native of Edenbridge, England, holds a master of business administration from Ashridge Management College.