Fiat Chrysler Automobiles Maintains Guidance After Record North America Profit

Fiat Chrysler Automobiles (FCAU +0.00%) said that its third-quarter adjusted operating profit rose 5% from a year ago, to 1.96 billion euros ($2.17 billion), as strong pricing drove a record result in North America despite a decline in overall shipments.

That adjusted operating profit, which excludes a series of one-time noncash impairment charges, was enough to beat the consensus Wall Street estimate of 1.89 billion euros as reported by Reuters.

FCA also confirmed its prior upbeat full-year guidance for 2019 -- and gave preliminary guidance for 2020, along with some new details about its ongoing restructuring efforts. But management had little to say about FCA's plan to merge with French automaker Peugeot (PUGOY +0.00%), as the deal is not yet finalized.

U.S. sales of high-profit Ram pickups rose 23% in the third quarter, helping to drive a record result for FCA's North America unit. Image source: Fiat Chrysler Automobiles.

The raw numbers

All of the financial results below are shown in euros. (FCA is incorporated in the Netherlands and is obliged to report its financial results in euros.) As of Oct. 31, 1 euro = $1.11.

What happened with Fiat Chrysler Automobiles in the third quarter?

All profit and loss figures in this section are reported on an adjusted-EBIT basis.

• Once again, North America was the big positive story in the quarter. While shipments fell by about 73,000 vehicles (to about 600,000) from a year ago, the region's adjusted EBIT rose 4.2% to a record 2.019 billion euros on strong sales of high-margin pickups and SUVs.
• FCA's adjusted-EBIT margin in North America, a number that is widely watched by auto investors, rose 0.4 percentage points to a record 10.6%.
• FCA's Asia Pacific unit posted a loss of 10 million euros, an improvement of 86 million euros from the year-ago period. Combined shipments fell 24%, largely because of lower volumes from FCA's joint ventures with Chinese automakers -- but revenue rose 18% on stronger vehicle mix and favorable foreign-exchange effects.
• FCA's Europe unit lost 55 million euros, versus a loss of 25 million euros a year ago, on lower shipments, pricing pressures, and higher compliance costs. Shipments fell 4% to about 270,000, largely due to the discontinuation of the small Fiat Punto and Alfa Romeo MiTo models.
• FCA's Latin America unit once again bucked industry trends by posting a profit gain. The unit made 152 million euros in the third quarter, up 83% from a year ago, on higher volumes and a one-off tax credit in Brazil, offset somewhat by lower sales in Argentina. Overall shipments fell slightly from a year ago to about 150,000.
• FCA luxury brand Maserati reports its results separately, on a global basis. It lost 51 million euros in the third quarter, down from a profit of 15 million euros a year ago. The brand's global shipments fell 48% from a year ago, to about 4,600, on a planned effort to reduce its dealers' inventories. That effort is expected to be completed by the end of 2019.

Cash and debt

As of Sept. 30, FCA had 16.2 billion euros in cash and equivalents available to its automotive business, plus another 7.6 billion euros in available lines of credit, for total available liquidity of 23.8 billion euros. Against that, it had debt totaling 14.9 billion euros, with 4.1 billion euros of that total set to mature by the end of 2019.

About those one-time items

FCA took one-time charges totaling just over 1.4 billion euros in the quarter. Much of that consisted of noncash impairment charges related to a revamp of its future-product plans for the Alfa Romeo and Maserati brands, including the need to overhaul a key platform to accommodate battery-electric drivetrains.

During FCA's earnings call, CEO Mike Manley said that all new Maseratis after 2020 will be offered in both internal-combustion and battery-electric versions and confirmed that the brand has several new products in the pipeline. But Alfa Romeo has trimmed its future-product plan because of weak sales: The existing Giulia sedan and Stelvio SUV will be joined by two more SUVs by 2022, but plans for other sedans and sports cars have been shelved.

Manley also said that in a bid to boost margins in Europe, the Fiat brand will refocus on "B-segment" (subcompact) vehicles rather than the tiny (and low-margin) "A-segment" models that have made up its core offerings in Europe in recent years.

Looking ahead: New guidance for 2020

FCA confirmed its prior guidance for 2019 and gave new guidance for 2020 that reflects an expected increase in capital spending and ongoing efforts to reduce dealer inventories in Europe.

For 2019, FCA still expects:

• Adjusted EBIT greater than 6.7 billion euros. (2018 result: 7.3 billion euros.)
• Adjusted earnings per share greater than 2.70 euros. (2018: 3.20 euros.)
• Industrial free cash flow greater than 1.5 billion euros. (2018: 4.4 billion euros.)

For 2020, FCA expects:

• Adjusted EBIT of greater than 7.0 billion euros.
• Adjusted earnings per share above 2.80 euros.
• Industrial free cash flow of more than 2.0 billion euros.