Fiat Chrysler Automobiles (FCAU +0.00%) reported a 35% drop in second-quarter income and cut its full-year guidance on weak results in China and the troubled launch of an important all-new pickup. On a per-share basis, FCA earned 0.48 euros in the quarter, falling far short of Wall Street's estimate of 0.85 euros. Revenue of 28.99 billion euros was in line with estimates.
It wasn't good news, but it was overshadowed by worse news that broke just a few hours earlier: Longtime CEO Sergio Marchionne, the architect of the Fiat-Chrysler merger and the company's rebirth as a profitable global player, had died.
FCA earnings: The raw numbers
All financial numbers below are shown in euros. As of July 25, 1 euro = about $1.17.
| Metric | Q2 2018 | Q2 2017 | Change |
|---|---|---|---|
| Revenue | 28.993 billion | 27.925 billion | 4% |
| Shipments (rounded to nearest thousand) | 1,301,000 | 1,225,000 | 6% |
| Adjusted EBIT | 1.655 billion | 1.867 billion | (11%) |
| Net profit | 754 million | 1.155 billion | (35%) |
Data source: Fiat Chrysler Automobiles. Shipments include vehicles shipped by FCA's joint ventures in China, which are not consolidated into overall financial results. "Adjusted EBIT" is FCA's expression of operating profit minus special items.
| Metric | As of June 30, 2018 | As of March 31, 2018 |
|---|---|---|
| Available liquidity | 21.17 billion | 19.39 billion |
| Total debt | 16.36 billion | 16.24 billion |
| Net industrial cash/(debt) | 456 million | (1.313 billion) |
Data source: Fiat Chrysler Automobiles. "Net industrial cash" is "available liquidity" (cash and credit lines) minus debt attributable to FCA's automotive business. "Total debt" includes debt attributable to both FCA's automotive business and its financial-services unit.
FCA's second quarter: The nutshell summary
Good results in North America and Latin America were more than offset by sharply higher costs and a drop in sales in China. FCA's luxury Maserati brand was hit especially hard, as Chinese buyers postponed purchases after the government announced that import duties would be reduced in July.
There was a spot of good news: As Marchionne had promised in his last report to investors, FCA's available liquidity now exceeds its automotive debt -- a longtime goal realized.
How FCA's business units performed
All of the profit numbers for FCA's regions and business units are presented as FCA reports them, on an "adjusted EBIT" basis. "Adjusted EBIT" is earnings before interest and tax, "adjusted" to eliminate the effects of one-time items.
- FCA's NAFTA (North America) unit earned 1.4 billion euros, up 3.4% from its result in the second quarter of 2017. Higher sales volumes and improved pricing helped; costs related to the launch of the all-new Ram 1500 pickup weighed. NAFTA's EBIT-adjusted margin fell to 8% from 8.4% a year ago.
- FCA's LATAM (Latin America) unit earned 101 million euros, up 68% from a year ago. Higher volumes and better pricing also helped in this region, offset somewhat by new-product launch costs and some unfavorable exchange-rate effects. LATAM's EBIT-adjusted margin rose to 4.8% from 3% a year ago.
- FCA's APAC (Asia, Pacific, Africa, China) unit lost 98 million euros versus a 44-million-euro profit a year ago. It was hurt by lower sales and higher incentives related to the change in China's import duties, offset somewhat by lower marketing costs.
- FCA's EMEA (Europe, Middle East, and Africa) unit earned 188 million euros, down from 200 million euros a year ago, as incremental improvements in sales and costs were offset by higher incentives and unfavorable foreign-exchange movements, particularly the British pound versus the euro. EMEA's EBIT-adjusted margin fell to 3% from 3.3% a year ago.
- Maserati earned just 2 million euros, down from 152 million euros a year ago, as sales fell to about 7,800 vehicles from 13,200 a year ago. As noted above, the largest sales decline was in China; the brand may be able to make up the shortfall as the year goes on. Maserati's EBIT-adjusted margin was just 0.4%, down from 14.2% a year ago.
- FCA's Components unit includes suppliers Magneti Marelli, Comau, and Teksid. It earned 130 million euros, flat from a year ago, with an EBIT-adjusted margin of 5%.
News of a July cut in import duties led Chinese buyers to postpone Maserati purchases in the second quarter. The brand's global sales fell about 40%. Image source: Fiat Chrysler Automobiles.
Looking ahead: Lowered expectations for 2018
As noted above, FCA cut its expectations for the full year. It now expects:
- Net revenue between 115 billion and 118 billion euros. (Prior guidance: about 125 billion euros.)
- Adjusted EBIT between 7.5 billion and 8 billion euros. (Prior guidance: greater than or equal to 8.7 billion euros.)
- Net industrial cash at the end of 2018 of about 3 billion euros. (Prior guidance: about 4 billion euros.)
FCA confirmed one part of its earlier guidance: It still expects an adjusted net profit of about 5 billion euros for the full year.
