FCA Improves Profit, But Performs Worse Than Competitors.

FCA Improves Profit, But Performs Worse Than Competitors.

“Considering all other manufacturers beat expectations results are a bit disappointing”

    Fiat Chrysler Automobiles (FCA) delivered what it promised in the second quarter, but as just about everybody else did better than expected the results disappointed investors.

    FCA adjusted operating profit in the second quarter rose 16 per cent to €1.63 billion in the same period a year ago. Earnings before interest and taxes though fell 14 per cent to €1.06 billion because of €414 million in charges for defective Takata air bags. Net debt, the bane of many investors, fell to €5.5 billion at the end of June from €6.6 billion the quarter previously.

    “FCA’s Q2 results met expectations. Considering that all other (manufacturers) beat expectations during the second quarter reporting so far, results are a bit disappointing. The results are solid but fall clearly short of the very strong results from competitors,” said Commerzbank analyst Sascha Gommel.

    The European recovery did not trigger a substantial uplift in profits there, but NAFTA results were solid. In the first half some 90 per cent of adjusted EBIT came from the NAFTA region. Given the expected weakness in U.S. sales, earnings there will be under pressure, Gommel said.

    Citi Research said FCA’s inability to generate cash was a worry, not to mention the size of its debt.

    “All should be fine if sales continue to grow, but if we see a slow-down then FCA will see net debt rise faster than its peers,” Citi analyst Michael Tyndall said.

    Going for SUVs, Pickups
  Morgan Stanley was much more upbeat about FCA’s prospects, saying it was its top pick in U.S. autos. It liked FCA’s U.S. decision to move away rapidly from making cars and concentrate on Jeep, Ram and Dodge SUVs, Minivans and Pickup trucks.

    This might also lead to a takeover bid one day.

    “We believe Jeep, Ram, Dodge Durango and the minivans to be highly profitable vehicle lines. We believe this collection of businesses and brands would be seen as attractive by a variety of competing global auto firms who lack exposure to such segments and brands,” Morgan Stanley analyst Adam Jonas said.

    The FCA results came soon after it was forced to change the way it reports monthly car sales in the U.S. after a fraud investigation. FCA said it would no longer register cars that have been shipped to dealers but not passed on to customers as sales. FCA dealerships had said the company padded sales to inflate monthly figures.