Fiat Chrysler Earnings: Crushed by Recall Costs

FCA's Jeep brand had a great quarter. But FCA's profit was clobbered by a one-time charge related to recalls. Image source: Fiat Chrysler Automobiles

Fiat Chrysler Automobiles (FCAU) reported a net loss of 299 million euros ($330 million) for the third quarter on Oct. 28, as its profit was more than offset by a surprise one-time charge related to recall costs in North America.

Fiat Chrysler results: The raw numbers

Financial results are in euros.

What happened with Fiat Chrysler this quarter?
FCA's underlying results weren't bad. Global sales were up 1% in the third quarter, as good gains in North America and Europe offset declines elsewhere. Net revenue rose 17%, thanks in part to a boost from exchange-rate shifts -- in constant exchange-rate terms it was up 6%. Adjusted EBIT was up 35%, giving FCA a 4.7% operating margin versus 4.1% in the year-ago quarter.

FCA's NAFTA unit, which covers North America, earned 1.19 billion euros before taxes, up from 554 million euros in the year-ago quarter. Its operating margin was 6.7%, well behind the huge margins posted by the North America units at Detroit rivals Ford (F 0.69%) (11.3%) and General Motors (GM 1.20%) (11.8%), but an improvement over past results. Sales rose 12% during the quarter, driven mostly by big gains for the Jeep brand. The unit also saw some gains in pricing as FCA continued its efforts to roll back its heavy dependence on incentives.

FCA began making the small Jeep Renegade in an all-new factory in Brazil earlier this year. Sales have been a bright spot in a difficult market. Image source: Fiat Chrysler Automobiles

The LATAM unit covers Latin America. It managed a small profit of 28 million euros on revenue of 1.52 billion euros despite very difficult economic conditions. Sales fell 31%. Marchionne said that he was encouraged by the success of Jeep in Latin America, with the recently introduced Jeep Renegade now leading the small-SUV market segment in the region. 

The APAC, or Asia Pacific unit, lost 83 million euros. Sales fell 45% -- but FCA was hit especially hard by the explosions in the Chinese port of Tianjin, which damaged a slew of vehicles. About 22,000 FCA vehicles destined for the Chinese market are still being held at the Tianjin port, which has been closed since the explosions on Aug. 12.

EMEA, FCA's European unit, earned 20 million euros, a better result than the losses posted by Ford and GM in the region. Sales rose 15%, outpacing the overall industry's 10% gain during the period. FCA boosted its market share in the European Union by 20 basis points, driven by good growth in Italy and France and a solid increase in arch-rival Volkswagen's home country of Germany.

FCA's two luxury brands report results separately from its regional units.

Ferrari (RACE -1.93%) is now public, but its IPO happened after quarter-end (and it's still largely owned by FCA). It earned 140 million euros (a 19.4% year-over-year increase) on sales of 723 million euros (up 9%). It delivered 1,949 vehicles during the quarter, up 21% versus a year ago. 

Sales of the Maserati Ghibli sedan have cooled considerably since its strong 2014 debut. Image source: Fiat Chrysler Automobiles

Maserati earned just 12 million euros, on revenue of 516 million euros (down 21%). The brand's  shipments fell 22%. Simply put, Maserati's midsize Ghibli sedan had strong early demand when it was introduced last year, but sales have since fallen off significantly. Maserati's sales were down 41% in North America, its biggest market, and down 24% in China.

That big special item
FCA's results were more than offset by a 761 million euro one-time charge to boost FCA's reserves against future recalls, specifically in North America. U.S. regulators hit FCA with a $105 million fine in July for poor management of past recalls, and the company was forced to take on an independent expert to monitor its safety practices. 

FCA CEO Sergio Marchionne said that the company would consider "pricing actions" to offset the charge over time.

Looking ahead
FCA confirmed its full-year guidance. It still expects worldwide shipments to total about 4.8 million units, generating revenues of more than 110 billion euros, a full-year adjusted EBIT of at least 4.5 billion euros, and an adjusted net profit of around 1.2 billion euros.