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Thumbs down Third-quarter earnings swing to a loss

Oct. 28, 2015

Fiat Chrysler Earnings Dented by Recalls
Third-quarter earnings swing to a loss on large charge for recall costs


MILAN— Fiat Chrysler Automobiles NV swung to a net loss in its third quarter on large charges to earnings to cover costs linked to safety recalls in North America and vehicles destroyed in an explosion in China.

The Italian-American auto maker posted a net loss for the quarter ended Sept. 30 of €299 million ($330.4 million) compared with a net profit of €188 million in the same period last year. Results included a €761 million pretax charge for the recalls. Revenue advanced 17% over a year earlier to €27.47 billion.

Fiat Chrysler also said it took a write down of €142 million in the quarter for damage to unsold vehicles sustained in the August port explosion in Tianjin, China. It said insurance should cover the costs.


Quote:
The loss sent Fiat Chrysler shares off 2.2% in Milan trading on Wednesday. The stock was off as much as 6.2% in midafternoon before recouping some lost ground. The stock had gained 20% in October through Tuesday on the initial offering of shares in its luxury-car unit, Ferrari NV.

Fiat Chrysler has struggled with recalls of almost 11 million vehicles in the U.S. so far this year compared with 8.8 million in 2014. U.S. regulators in July hit it with a $105 million penalty for the poor management of recalls. U.S. authorities also forced Fiat Chrysler to take on an independent auditor to monitor its safety practices. The company last week named former U.S. Transportation Secretary Rodney Slater to that role.

The net loss compared with strong quarterly profits at General Motors Co. and Ford Motor Co. The Detroit duo, benefiting from strong U.S. demand for trucks and sport-utility vehicles, each set records for North American operating profit in the third quarter.

North American operating margins at Ford and GM topped 11% of sales in the latest period. Fiat Chrysler’s pursuit of U.S. market share hasn’t been nearly as profitable. Its operating margin in the region consistently has come in at less than half its U.S. rivals and in the most recent quarter was 4.7% of sales.

“Undoubtedly there are impressive numbers coming out of both Ford and General Motors and obviously we are envious,” Fiat Chrysler Chief Executive Sergio Marchionne said on Wednesday on a conference call with analysts.

Most of the difference can be attributed to his competitors having a product mix more heavily weighted toward higher margin trucks and large SUVs, Mr. Marchionne said.

Mr. Marchionne said Fiat Chrysler is underrepresented in the large SUV market, something he is trying to rectify with the planned introduction in 2018 of the Jeep Wagoneer.

The €20 million Fiat Chrysler earned in Europe last quarter is the fourth straight quarterly profit in the region after more than seven years of losses. The €28 million earned in Latin America is Fiat Chrysler’s first quarterly profit in the region this year.

Fiat Chrysler confirmed its 2015 profit and revenue guidance. The company expects to sell 4.8 million vehicles this year, compared with 4.6 million in 2014. Revenue is seen at €110 billion, 15% more than last year, while adjusted net profit, which doesn’t include the latest recall charges, is expected to be about €1.2 billion.
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A Ferrari outside the New York Stock Exchange last week. Ferrari NV on Wednesday reported that its third-quarter profit surged as the Italian sports-car maker boosted shipments. Photo: Lucas Jackson/Reuters

Another bright spot for Fiat Chrysler is its luxury sports car unit Ferrari, which earlier Wednesday reported strong profit and revenue on the quarter.

Ferrari’s third-quarter net profit surged 62% to €94 million as the company boosted shipments. Revenue rose 9.2% to €723 million helped in part by currency fluctuations. Ferrari said it expects to sell 7,700 cars this year compared with about 7,200 last year

As of last week, 10% of Ferrari is traded on the New York Stock Exchange following Fiat Chrysler’s sale of stock in an initial public offering. Fiat Chrysler still owns 80% of Ferrari, which it plans to spin off to its shareholders early next year, while the rest is held by a son of Ferrari’s founder.
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