FCA CEO Sergio Marchionne has reason to celebrate Q2 - albeit cautiously.
Fiat Chrysler Automobiles reported a 25% year-over-year increase in profits for the second quarter, despite hefty recall costs, thanks to strong demand in North America and Europe. That has led the maker to up its guidance for all of 2016.
But recalls aren’t the only problems the maker is dealing with. The trans-Atlantic automaker yesterday acknowledged misreporting its sales numbers in recent years, a problem that has reportedly led to a grand jury investigation. The problem could lead to closer scrutiny by industry analysts and investors.
“Overall we had a good quarter,” Fiat Chrysler Chief Financial Officer Richard Palmer said during a conference call with analysts and reporters.
FCA earned 321 million euros, or $352 million, for the second quarter, a 25% jump from last year’s 257 million euros, or $282 million.
The results would have been even better if not for a spate of recent recalls that cost it 414 million euros, or $455 million. The ongoing shift in production – away from passenger cars and emphasizing light trucks and crossovers – also resulted in a 105 million euro, or $115 million charge. Excluding various one-time costs, FCA reported an adjusted operating profit of 1.63 billion euros, or $1.79 billion, a 16% increase from Q2 2015.
(Grand jury reportedly probing FCA sales reporting practices. Click Here for more.)
FCA is betting on the arrival of the new Levante SUV to "reinvent the relevance" of the Maserati brand.
Much of the credit goes to North America where earnings were up 5%, to $1.5 billion. That was despite a modest 2% decline in sales. That dip comes as something of a surprise, as FCA had, until this week, claimed to have scored 75 consecutive months of year-over-year sales gains. But the maker yesterday announced it committed numerous errors in its reporting and the sales surge actually ended back in September 2013.
Though FCA contends it has actually underreported sales since 2011 by almost 19,000 vehicles, its practices have come under close scrutiny by the Securities and Exchange Commission and a U.S. grand jury is reportedly investigating the carmaker’s sales practices.
Nonetheless, the automaker insists the discrepancies do not impact past or present financial reports. It called out media coverage which, it claimed has “mistakenly suggested that potential inaccuracies in the monthly data somehow impact the integrity of FCA’s reported revenues in its financial statements.”
(New Chrysler Pacifica minivan gets off to a fast start. Click Here for details.)
On the positive side, Fiat Chrysler raised its guidance for all of 2016, estimating it will earn 2 billion euros, or $2.2 billion. That’s about $100 million more than earlier guidance had suggested.
Another positive development for FCA was the upturn in its European numbers. The market is just rebounding after a decade-long recession that saw a number of makers, including FCA, having to trim production capacity. For the quarter, the trans-Atlantic maker reported a European profit before taxes and other charges of 143 million euros, or $157 million, a significant, 151% increase. But CFO Palmer put a note of caution on the celebration, noting European profit margins nonetheless lag key rivals.
FCA is shifting U.S. production to trucks and utility vehicles, and away from passenger cars
“To be frank, the 2.5% is not good enough, given where our competition is performing,” Palmer said.
Results were mixed in Asia. Despite the launch of a joint venture in China that helped increase sales of Jeep products in that market by 32%, overall pre-tax earnings in the region were down 11%, to $46 million.
The real weak spot, however, was South America, where Brazil, Argentina and other key markets have been suffering from serious economic downturns. For the region, sales fell 19%, while revenues were off 21% for the quarter.
During the conference call, CEO Sergio Marchionne pointed out FCA’s ongoing shift in North America from cars to light trucks, noting that by the end of next year only Jeeps, pickups and crossovers will roll off FCA’s U.S. assembly lines – though cars like the Chrysler 300 will still be produced in Canada.
(FCA investing $1.5 bil to switch to pickup production at suburban Detroit plant. Click Here for the story.)
The market shift is being felt worldwide, and up and down the vehicle price spectrum. Maserati, one of FCA’s luxury brands, reported earnings were down about 15% year-over-year, to 36 million euros, or $40 million. But the Fiat Chrysler CEO said he expects that brand will soon regain momentum. The addition of Maserati’s first utility vehicle, the Levante, will “reinvent the relevance” of the brand, he promised.
FCA’s stock took a modest hit on the New York exchange at the start of Wednesday morning, but it showed some rebound heading towards noon, at just under $7 a share.