Pickups drive Fiat Chrysler to record second quarter
Pickup sales are keeping Fiat Chrysler Automobiles NV trucking, despite a sales slowdown weighing on the broader industry.
The Italian-American automaker on Wednesday reported a 14% year-over-year profit increase and its best-ever second quarter in North America, fueled by the new heavy-duty Ram and Jeep Gladiator pickups. The results prompted FCA to maintain its guidance for the year, even as such rivals as Ford Motor Co. decreased their forecasts for the year.
"Overall I would say we are pleased with our second results, which were in line with our second-quarter expectations," FCA CEO Mike Manley said on a call Wednesday. "It gives us some strong momentum as we enter the second half of the year, particularly when you consider the significant reduction in dealer stock in the quarter."
One year after Manley took over the automaker's helm days ahead of the unexpected death of longtime CEO Sergio Marchionne, the automaker still is looking to get a greater foothold in China, turn around its European business and keep the cash flowing from North America to fund progress on electrification and self-driving technology.
FCA earned $1.7 billion (1.6 billion euros) in North America and posted an 8.9% pre-tax margin, up from 8% a year ago. The automaker's U.S. vehicle shipments fell 12% from dealer stock reductions, as the company looks to reduce heavy inventory numbers.
"North America was again the bottom-line driver, as the region accounted for all of quarterly" pre-tax earnings, CFRA Research analyst Garrett Nelson wrote in a note lowering by $2 the automaker's price target. FCA's "performance relative to peers will begin to reflect its product momentum from the Jeep Gladiator introduction and surging Ram pickup sales," he added.
The automaker's shares closed up 1.7% Wednesday at $13.19, despite a down day in the markets.
FCA booked an $884 million (793 million euro) net income in the second quarter of the year. The Ram pickup trucks were the only FCA brand to post a sales increase (28%) over the first half of the year. Light-duty trucks, including the new Gladiator, accounted for nearly 92% of sales in the second quarter, which raised the company's average transaction price more than 8% year over year to $40,456, according to auto resource website Edmunds.com. The Gladiator exceeded expectations, Manley said, notching a 7.7% share of the U.S. segment in June.
The Ram pickup maintained its spot as the No. 2-selling truck in the United States in the second quarter. It surpassed the Chevrolet Silverado in the first three months of the year, though it still trails the Ford F-Series.
To keep it that way, Manley said he expects to continue running the older model Ram 1500 at the Warren Truck Assembly Plant as long as there still is demand. He noted FCA could add updates to the classic version and continue selling it at a lower price.
Meanwhile, high inventories, trade hostilities and decreasing global auto demands will make for greater challenges with investments in future technology and negotiations currently ongoing with the United Auto Workers. Although the automaker has worked to decrease its inventory levels, it on average took 108 days to get vehicles off dealer lots compared to the industry average of 77, according to Edmunds.
"It's not all good news for FCA, as inventory levels are higher than they should be," Jeremy Acevedo, senior manager of insights at Edmunds, said in a statement ahead of earnings. "FCA is getting away with not spending as much on incentives right now thanks to strong new truck sales, but as we progress further into the year they're really going to need to step it up in order to start moving everything else off dealer lots."
The automaker reported $29.8 billion (26.7 billion euros) in revenue for April, May and June. Its second-quarter results were down 3% from the same period of 2018. FCA also reported $1.7 billion (1.5 billion euros) in adjusted earnings before interest and taxes, a slight decrease from a year ago.
Adjusted diluted earnings per share were 56 cents (0.50 euros), up 14% from the second quarter of 2018. Industrial free cash-flow was down 50% to $840 million (754 million euros) from payments related to alleged cheating on diesel emissions testing and higher capital expenditures.
The company in its second quarter secured state and local support for the expansion of its Mack Avenue Engine Complex on Detroit's east side for production of the next-generation Jeep Grand Cherokee and a three-row full-size Jeep SUV. It is part of a $4.5 billion investment into five Michigan plants, including the nearby Jefferson North Assembly, which makes the Dodge Durango and Grand Cherokee. The plants will be upgraded to allow for hybrid versions of their vehicles and eventually all-electric models. Production is expected by late 2020 or early 2021.
FCA plans to introduce 17 electric nameplates by 2022. It expects to be fully compliant with European carbon emissions limitations toward the end of 2020 with an up-to 5% electric sales mix with credit purchases, Manley said. The company made agreements costing $2 billion (1.8 billion euros) over the next three years to buy emissions-related regulatory credits in North America and from Tesla Inc. in Europe. Not meeting the requirements could cost the company hundreds of millions of dollars.
"What we're looking at from where we sit today is a progressive transition," Manley said, "with the right investments in our electric vehicle fleet to the backend of 2021-22 where we will through our own products be completely compliant."
FCA lost a potentially major partner in its electrification efforts after FCA revoked its offer last month to merge with French automaker Renault SA over political challenges. Although the automakers' executives have said they hope to resume talks, the deal appears dead for now, Renault CEO Thierry Bolloré said Friday.
The scale of such a merger that would have created the third-largest automaker in the world remains compelling, Manley said.
"The opportunity was a great opportunity for us and, we believe, a great opportunity for Renault," he said. "It was not a necessary step for us in how we develop our business going forward. We have a relatively robust business plan that survives without the merger."
FCA earned $25 million (22 million euros) before taxes in Europe after restructuring in the first quarter. It lost $13 million (12 million euros) in Asia in the second quarter. The company made some leadership changes to its decade-old joint venture with China's Guangzhou Automobile Group in April to "more rapidly respond to changes in the Chinese market."
Latin America had pre-tax earnings of $122 million (110 million euros). Stock reductions and sales declines put the Maserati luxury sports-car brand at a loss of $133 million (119 million euros). Manley said he expects a more positive story for the brand next year, when the company begins 10 product introductions through 2023.
Crosstown rival Ford reported its second-quarter profits slid 86% in the second quarter to $148 million. General Motors Co. releases its earnings Thursday.