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Fiat Chrysler relies on US profit as Europe, Asia slump
RAM trucks and Jeep SUVs carried the load for Fiat Chrysler Automobiles NV in the third quarter, as the Italian-American automaker posted the highest profit margins in North America since its formation in 2014, while Europe and Asia stumbled.
The strength in North America, bolstered by the hot-selling new Ram 1500 and Jeep Wrangler, underscores the automaker's growing reliance on the US for profit.
The Nafta region accounted for 97 per cent of Fiat Chrysler's two billion euros (S$3.1 billion) in adjusted earnings before interest and taxes during the period.
That partially offset the drag of new emissions-testing rules in Europe and a trade-war fed slowdown in China, regions that both posted losses.
The uneven performance highlighted the challenges facing chief executive officer Mike Manley outside the US and overshadowed what should have been a triumph for a company whose two predecessors teetered on the edge of bankruptcy not long ago: the announcement of a two billion-euro special dividend following the sale of its Magneti Marelli components unit and plans for an ongoing payout starting next spring.
Fiat Chrysler's US-traded shares fell as much as 1.9 per cent in New York and were down 1.6 per cent at 10:42am.
"On balance, we believe today's release should be taken positively," analysts led by Arndt Ellinghorst at Evercore ISI said in a note.
Strength in North America, the shareholder distributions, reaffirmed operating guidance and a diesel charge that removes uncertainty should outweigh a weaker-than-expected outlook for cash flow, the analysts said.
Fiat took advantage of a pending windfall from the sale of Marelli to tie up costly loose ends - it disclosed a 700 million euro charge from diesel litigation in the US and accelerated payments to its pension fund.
Net income fell 38 per cent as lower volumes in China and Europe cut into earnings at its Maserati luxury division.
In terms of regions, Fiat Chrysler is now a tale of two companies: profit coming from the Americas, including a 41 per cent advance in adjusted Ebit in Latin America, but losses in both Asia and in Europe, where Fiat was founded in Turin, Italy, in 1899.
Stiffer competition and tax changes in China forced Mr Manley to lower guidance for revenue and profit in 2018 in July, just hours after the death of his mentor and former CEO Sergio Marchionne.
Mr Marchionne said in April he was aiming to best Ford Motor Co and General Motors Co's (GM) North American profit margins by the fourth quarter of 2018.
Fiat is poised to succeed a quarter early, after posting a record 10.2 per cent adjusted Ebit margin in the region, beating Ford's 8.8 per cent result. GM, which was scheduled to report on Wednesday, was expected to come in at 9.3 per cent, according to Evercore ISI.
Jeep brand sales in the US rose 20 per cent through September to 746,194, driven by the Wrangler. Mr Manley said at the company's capital markets day in June that Jeep will introduce a new mid-size pickup to further juice profits.
Sales of the Ram 1500 have gained steam after a bumpy rollout earlier in the year: US deliveries jumped 10 per cent in September.
Fiat Chrysler's sales in Asia tumbled 26 per cent, and operations in the region fell to a 96-million euro loss as Mr Manley works on turning around the Jeep brand in China amid a broader slowdown in auto sales and rising competition from domestic brands. Sales of the Jeep Grand Commander, built specifically for China, have struggled and dealers have been forced to discount the vehicles.
Fiat Chrysler's goal of doubling profit over the next five years rests squarely on Jeep's ability to expand in the world's largest automotive market. Mr Manley said in July it would take a year to reposition the brand and strengthen its dealer network there.
Latin America was the only other bright spot on the globe, where Brazilians have been snapping up enough Jeep Compass SUVs to offset a downturn in Argentina. Ebit in the region jumped 41 per cent. Analysts expect Latin America's largest economy to grow with the presidential election of conservative lawmaker Jair Bolsonaro, who has pledged to rein in the deficit and boost economic growth.
Fiat Chrysler confirmed its forecast of as much as 118 billion euros in revenue this year and as much as eight billion euros in adjusted earnings before interest and taxes. The diesel-litigation charge ate into cash reserves. The company now expects to end the year with 1.5 to two billion euros in net industrial cash, which excludes financial debt. That's down from three billion euros previously. BLOOMBERG