Fiat Chrysler’s Profit Jumps on Enhanced European Performance – Wall Street Journal

Posted: Wednesday, July 27, 2016

Fiat Chrysler’s 500 subcompact cars on display at the AutoNation FIAT South Bay dealership in Hawthorne, Calif. The company said its performance in North America during the second quarter held steady.
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MILAN—Fiat Chrysler Automobiles NV on Wednesday nudged up its full-year financial targets and reported a rise in second-quarter profit as performance improved in Europe while holding steady in North America, the Italian-American car maker’s two largest markets.

Fiat Chrysler, which has limited exposure to the U.K., has boosted its European market share by half a percentage point so far this year to 6.9% to jump three positions and become the region’s fourth-biggest car maker. But the company remains heavily dependent on North America where it generates about two-thirds of sales and four-fifths of profit.

The company’s North American adjusted operating margin, a closely watched measurement of profit, rose to 7.9%, a slight increase from last year’s 7.7%. While Fiat Chrysler has been steadily boosting that figure, the company still lags behind its U.S. rivals. General Motors Co.
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posted a 12.1% North American profit margin in the last quarter. Ford reports results Thursday and is expected to come in around 10%.

“Closing the gap remains a permanent fixation that we have,” Fiat Chrysler Chief Executive Sergio Marchionne said on a conference call.

The minimal progress Fiat Chrysler made with its North American profit margin in the quarter suggests the company’s improved profitability in recent quarters is running out of steam, wrote Evercore ISI in a note.

To improve the position, Fiat Chrysler has been focusing on boosting U.S. production of sport-utility vehicles and trucks, which can command higher margins than cars.

This week, the company said it would spend about $1.5 billion to convert a factory from producing Chrysler 200 sedans to the new Ram 1500 truck. The Chrysler 200 has had poor sales and Fiat Chrysler is looking to outsource future production of the car.

By the end of the first quarter next year, Fiat Chrysler will have shut down all car production in the U.S. and will only be producing Jeep SUVs and Ram trucks, Mr. Marchionne said, adding that progress had been made in the search for a production partner.

Net Profit in the second quarter rose 25% to €321 million ($353 million) while adjusted operating profit, which strips out one-time items, rose 16% to €1.63 billion. Revenue fell 2% to €27.89 billion. At constant exchange rates sales rose 1%.

The outlook for full-year adjusted operating profit got a 10% boost to more than €5.5 billion compared with a previous forecast given in January and confirmed in April. Revenue is now seen at €112 billion, an increase of €2 billion.

Fiat Chrysler shipped 1.17 million vehicles in the second quarter, in line with last year’s second quarter, as an increase in Europe offset drops in North America, Asia Pacific and South America. As in recent quarters, Jeep underpinned the gains in volume with a 16% increase.

Chief Financial Officer Richard Palmer said the company is hedged this year against the fall of the British pound following the U.K.’s vote last month to leave the European Union, but if sterling remains weak into next year it would have an adverse impact on financial results. Fiat Chrysler has no production in the U.K.

The executives didn’t address the company’s announcement yesterday that it had revised its monthly vehicle sales for the past 5½ years.

Write to Eric Sylvers at eric.sylvers@wsj.com

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