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Why Shares of Fiat Chrysler Automobiles Jumped 10% Today

By John Rosevear - Apr 26, 2017 at 3:21PM

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A strong earnings report showed investors that FCA's profit-boosting plan is working.

What happened

Looks like Wall Street liked the numbers: Shares of Fiat Chrysler Automobiles N.V. ( FCAU ) rose sharply after the company released its first-quarter earnings results on Wednesday morning. FCA's shares were up about 10% in mid-afternoon trading in New York.

So what

FCA's first-quarter net income of 641 million euros was 34% higher than its year-ago result, despite only modest increases in revenue and worldwide sales. How did that happen? The answer is pretty simple, and it's one that investors were glad to hear.

FCAU Price Chart

FCAU Price data by YCharts.

In a nutshell, FCA is selling a greater percentage of higher-profit vehicles -- a better "mix," in the industry's lingo -- than it did a year ago. In an effort to boost profitability and reduce its debt significantly by the end of next year, FCA is working around the world to increase sales and production of its most profitable products -- trucks, SUVs, and luxury models.

The plan won't be fully in place for a few more quarters, but as we saw in the first quarter, it's already helping. FCA's year-over-year profit jump was largely attributable to two factors, both related to the effort:

  • The new Maserati Levante SUV, which boosted the luxury brand's adjusted pre-tax profit to 107 million euros from just 16 million euros a year ago;
  • An 85% increase in adjusted pre-tax profit in Europe (to 178 million euros), driven largely by good sales of two new Alfa Romeo models.

Investors saw the results as an early validation of CEO Sergio Marchionne's plan.

A Maserati Levante SUV

Strong sales of Maserati's new Levante SUV drove a big profit increase for FCA's luxury brand. Image source: Fiat Chrysler Automobiles N.V.

Now what

Things could get even better from here for FCA. Marchionne said the first quarter would likely be the weakest of the year, as FCA spent heavily to begin the process of retooling plants in the U.S. to make more trucks and SUVs.

FCA was in the process of ramping up production of two new SUV models in the first quarter, the Jeep Compass and Alfa Romeo Stelvio. As those new SUVs hit full production, FCA's worldwide sales -- and profits -- should improve further from here.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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