Recall costs detrimental to Fiat Chrysler – The Detroit News
Recall costs of more than $850 million pulled Fiat Chrysler Automobiles NV’s third quarter earnings into the red.
The automaker on Wednesday reported a $334 million loss for the third quarter due to recall costs and another special charge that it expects to recoup related to inventory and incremental incentives for vehicles damaged in the Tianjin port explosion on Aug. 12.
The two charges cost Fiat Chrysler more than $1 billion: $850.2 million (761 million euro) pre-tax charge for estimated future recall campaign costs for vehicles sold in prior periods in North America; and a $158.6 (142 million euro) hit due to the explosion in China.
The company said it expects to recover the losses in China through insurance. All earnings are based on the Sept. 30 exchange rate.
The National Highway Traffic Safety Administration in July hit Chrysler with a record $105 million penalty for violating laws in 23 recalls covering more than 11 million vehicles. Those are on top of other recalls announced by the company in recent years
Fiat Chrysler also is under investigation for failing to report some deaths and injuries to the agency as required by law.
Barring the special items, the company performed fairly well. It increased revenue to $30.7 billion (27.5 billion euro) — beating Wall Street expectations of $27.21 billion; and reported an adjusted profit of roughly $338.5 million (303 million euro), up 31.7 percent from a year ago.
While Ford Motor Co. and General Motors Co. shares were trading up a bit, Fiat Chrysler shares on the New York Stock Exchange were down nearly 5.3 percent in early morning trading to $14.60 per share. Shares closed Tuesday at $15.41 per share — up 71 percent from its $9 IPO price a year ago.
The company’s third-quarter earnings per share were in-line with expectations of 20 cents.
The automaker shipped 1.1 million vehicles from July through August — in line with the same time period a year ago. Jeep shipments were up 27 percent, putting it on pace for its fourth-consecutive year of record global sales.
The company confirmed its full-year guidance of shipping about 4.8 million vehicles; revenue over 110 billion euro ($122.9 billion); and net profit of 1.2 billion euro ($1.3 billion).
The company was profitable in all of its markets in the third quarter except Asia-Pacific, where it lost $92.7 million (83 million euro) due to a 45 percent decline in shipments due to the “Tianjin (China) port explosion, strong competition from local producers in China, and reduced shipments in Australia due to pricing actions.”
North America continues to be Fiat Chrysler’s strongest market with about $1.3 billion (1.2 billion euro) earned, up $706 million (632 million euro) from a year ago. Other regions: Latin America was down $38 million (34 million euro) to $31.3 million (28 million euro) in earnings; Europe was up $88.3 million (79 million euro) from 2014 to $22.3 million (20 million euro).
Fiat Chrysler’s luxury brands continue to garner mixed results: Maserati earned $13.4 million (12 million euro), down $87 million (78 million euro) for the third quarter in 2014; Ferrari reported an $40.2 million (36 million euro)increase in earnings to $156.4 million (140 million euro).
The earnings cap off a busy week for Fiat Chrysler. They come a week after the United Auto Workers union members overwhelmingly ratified a new four-year deal with the automaker and the company launching an initial public offering of Ferrari NV.
Fiat Chrysler spun off the famed racing brand to raise funds to finance its ambitious five-year growth plan announced last year. The company sold a 9 percent stake in Ferrari last Tuesday, or 17.2 million shares, to underwriters at $52 a share — at the top end of the $48 to $52 range — for $893 million. The stock opened at $60 — up 14 percent — but closed at $55 as 22 million shares changed hands Wednesday. The stock trades under the “RACE” symbol.
Richard Hilgert, an analyst with Morningstar Inc. in Chicago, called the Ferrari IPO a “tremendous success, considering the current market conditions that have caused some IPOs to cancel or postpone.”
“We are maintaining our fair value estimate, as cash from the Ferrari IPO went directly into Fiat Chrysler’s coffers,” he said in a recent note to investors. “The spin-off of Fiat Chrysler’s remaining stake of Ferrari sometime at the beginning of next year will be a different story.”
Fiat Chrysler CEO Sergio Marchionne and CFO Richard Palmer are expected to discuss the third quarter results with financial analysts and media at noon Wednesday.
Fiat Chrysler is the last of the Detroit automakers to report its third-quarter earnings.
Ford on Tuesday reported earnings of $1.9 billion in the third quarter, up $1.1 billion from the same time a year ago. Its pre-tax profit of $2.7 billion was a third quarter record and more than double the $1.2 billion it made in the third quarter of last year. Ford posted revenue of $38.1 billion, up $3.2 billion, beating analysts’ estimates. Ford’s third quarter earnings per share was 45 cents per share.
GM last week reported a nearly $1.4 billion profit for the quarter, buoyed by continued strength in pickup and SUV sales and a strong-performing North American market that offset weakness in other global regions. The North America region had record adjusted pre-tax earnings of $3.29 billion, up more than 34 percent from a year ago and revenue hit a quarterly record.