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July 21, 2010 Chrysler to post Q2 profit, Marchionne says | | The Detroit News

Chrysler to post Q2 profit, Marchionne says

Fiat and Chrysler Chief Executive Sergio Marchionne said today Chrysler Group LLC will report a second consecutive quarterly operating profit.

Second-quarter figures will be announced Aug. 9. Chrysler and Fiat SpA partnered in June 2009. Chrysler posted a $143 million operating profit in the first quarter.

Italian-based Fiat today reported second-quarter profits, largely on the strength of the agricultural and industrial divisions that are targeted to be spun off from the automotive group by Dec. 31. The company may raise its 2010 forecasts in the third quarter.

Its second-quarter net profit was $115.6 million, compared with a loss of $215 million in the same period last year. Net revenues were up 12.5 percent to $19 billion.

Fiat's board, which met in Auburn Hills this week, announced today that it has approved the plan to separate its industrial holdings into a new company, leaving the automotive components as a separate company. The split was announced in April as a means to better realize the value of the different types of business within the Fiat Group, and allow them to make more focused business decisions.

Fiat will consist of automotive units: the Fiat, Lancia and Alfa Romeo volume brands, luxury Ferrari and Maserati, and the powertrain and components divisions that support these vehicles.

The success of Fiat as an automotive-only entity relies heavily on its partnership with Chrysler to succeed.

A new company, to be called Fiat Industrial SpA, will include the Iveco commercial and truck division and CNH, which makes agricultural and construction equipment. Marine and industrial powertrain work will stay with this group.

Marchionne said a special shareholders meeting will be held Sept. 16 to vote on the Fiat split. Shareholders will receive equal stakes in both companies and net debt will be split evenly between the two.

But Fiat will keep $12.8 billion in cash on hand while the industrial side will keep only $3.8 billion because it is not a capital-hungry business and therefore needs less, the CEO said.

"I am not concerned about the ability of the auto portion to generate cash," Marchionne said, adding there is substantial contribution from Ferrari and Maserati, as well.

"We are looking forward to new life on Jan. 1 as two companies," Marchionne said.

The company's debt, he said, has been reduced and banks have provided about $5.2 billion in financing. It is costing about $128 million a quarter to maintain unusually high liquidity, Marchionne said, but it is necessary to execute the separation of the two companies.

The earnings report sent shares in the company 6 percent higher to $12.33 in Milan.

Bernstein analyst Max Warburton said the better-than-expected results should lead the way for strong reports across the European auto sector. He had expected Fiat to underperform French and German competitors, which have yet to report, but was forced to revise his assumptions.

"Missing the degree of Fiat's progress in Q2 is probably a classic case of a European auto analyst trying (and failing) to follow global construction markets and Brazilian developments," Warburton wrote in a note. "But Fiat beat numbers massively, largely due to a massive improvement in the operating results of CNH, the Powertrain business and a better-than-expected auto result, driven by Brazil and LCVs" (light commercial vehicles).

But Moody's Investors Service today said it has put Fiat's ratings under a three-month review for possible downgrade.

"Today's rating action was solely triggered by the approval of the de-merger plan of Fiat's capital goods business and its possible impact on the remaining Fiat operations focusing on car business and related components businesses," said analyst Falk Frey.

Moodys will review allocation of debt and cash between the two companies amid concerns that splitting the company will weaken Fiat despite the business sense behind the de-merger.
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