Fiat Profit Triples on Higher Demand for Chrysler Vehicles

[LeadFoot]

Fiat SpA, the Italian carmaker that owns Chrysler Group LLC, said third-quarter profit more than tripled on higher demand for the American automaker’s vehicles.

Earnings before interest, taxes and one-time items, which Fiat calls trading profit, rose to 851 million euros ($1.21 billion) from 256 million euros a year earlier, the Turin, Italy-based carmaker said in a statement today. Profit beat the 696 million-euro average estimate of eight analysts. It’s the first full quarter of Fiat results including Chrysler figures.

Sergio Marchionne, chief executive officer of both automakers, raised Fiat’s full-year target for trading profit to more than 2.1 billion euros on the strength of Chrysler’s earnings. Marchionne is counting on profit from the Brazilian unit and Chrysler as Fiat struggles to end European losses.

“Fiat trading profit is better than expected, while revenues are weak,” said Emanuele Vizzini, chief investment officer at Investitori Sgr in Milan. “The Italian problem is emerging in the Fiat results.”

Chrysler’s third-quarter trading profit was 556 million euros, contributing 65 percent of overall earnings. Group revenue more than doubled to 17.6 billion euros. The carmaker reiterated a forecast for 2011 sales to exceed 58 billion euros.

Fiat rose 22 cents, or 4.5 percent, to 5.10 euros in Milan trading. The carmaker reported results today after the market close. The shares have fallen 24 percent this year, valuing the automaker at 6.2 billion euros.

Rising Debt

Fiat posted a net loss of 46 million euros versus a profit of 170 million euros last year due to a 138 million-euro write- down in the mark-to-market of two stock-option related equity swaps and 57 million euros in extraordinary charges.

The carmaker’s net industrial debt rose to 5.8 billion euros in the third quarter, of which 2.9 billion was Fiat excluding Chrysler.

“The real story is the cash burn,” said Erich Hauser, a Credit Suisse analyst in London. “They are at 5.8 billion euros of net debt, while the market expected 4.1 billion euros.”

Chrysler’s rebounding sales are helping prop up Fiat. The American carmaker’s third-quarter U.S. market share gained 1.8 percentage points to 11.4 percent, the company said today. Fiat’s European market share in the period sank 0.6 percentage points to 6.5 percent.

“Chrysler is making a fundamental contribution to Fiat’s profit as it takes advantage of the improved U.S. and Canadian markets,” Marchionne said earlier this week.

Mixed Results

European automakers have been reporting mixed third-quarter results. Rival Volkswagen AG, Europe’s largest carmaker, said today operating profit surged 46 percent to 2.89 billion euros on demand for Audi and VW brand sport-utility vehicles in China and the U.S. PSA Peugeot Citroen, Europe’s second-largest carmaker, yesterday cut its 2011 auto profit target and said it may eliminate as many as 3,500 jobs as pricing pressure rises.

Trading profit at Ferrari, Fiat’s most profitable unit, rose 1.3 percent to 77 million euros, while Maserati’s earnings doubled to 8 million euros. That compares with a 1.5 percent drop to 128 million euros for Fiat Automobiles, the mass- carmaker unit grouping the Fiat, Lancia and Alfa Romeo brands.

Fiat was downgraded one level by Fitch Ratings last week on concern that a combination with Chrysler will increase financial risk for the Italian carmaker. Fiat was lowered to BB, two steps below investment grade, from BB+, Fitch said. The rating company has a negative outlook on the manufacturer.

Moody’s Investors Service and Standard & Poor’s lowered their ratings on Fiat earlier this year, citing concerns that the integration with Chrysler will leave Fiat responsible for the American carmaker’s debt.

No Timetable

Marchionne, while reaffirming plans to merge Fiat and Chrysler, said Oct. 19 the combination is not a “priority” and there’s no timetable set to complete the process.

Fiat is not in talks with the United Auto Workers union’s retiree health-care trust, a voluntary employee beneficiary association, to buy their 41.5 stake in Chrysler, he said. Fiat expects to get to 58.5 percent by the end of the year after meeting performance targets set during the Chrysler bailout.

Chrysler’s U.S. hourly workers ratified on Oct. 26 a new four-year contract, completing the United Auto Workers’ negotiations with U.S. automakers. Auburn Hills, Michigan-based Chrysler agreed to add 2,100 jobs and invest $4.5 billion, according to the union’s contract summary released Oct. 12.

posted in Business Week