New products like the Jeep Grand Cherokee helped Chrysler reverse course during the first quarter.
For the first time in nearly five years, Chrysler Group posted a quarterly profit as the company’s improbable comeback continued to pick up momentum.
Chrysler earned $116 million for the first quarter, reversing the $197 million loss posted during the first quarter of 2010, as the company’s revenue grew by 35% to $13.1 billion in the first three months of 2011.
The latest number mark a potentially significant reversal of fortune for a company that hasn’t made money since former partner Daimler AG effectively dumped the U.S. arm on financial equity giant Cerberus Capital Management. Failing to reverse course, Cerberus agreed to put Chrysler into bankruptcy protection in 2009, the automaker emerging under the control of Italy’s Fiat SpA.
The first-quarter turnaround “shows we’re on the right path,” Sergio Marchionne, the CEO of both automakers, said during a media conference call. “We’re now in an exceptionally solid financial position. It’s been a good quarter and a good operating performance.”
Marchionne separately noted, “We remain focused on delivering great products to our customers and continuing to achieve the sales and financial targets outlined in our 2010-2014 business plan.”
The profitable first quarter should make it easier for Chrysler to raise the $6.3 billion it will require to repay loans from the U.S. Treasury as well as the loans from the Canadian federal and Ontario provincial government. The loans total $7.5 billon but Fiat has agreed to invest $1.2 billion. The cost of the interest on the loans was $348 million during the first quarter.
The refinancing is already well underway Chrysler said Monday. (For specific details of the refinancing plan, Click Here.)
The automaker posted an operating profit of $477 million in the first quarter 2011 or 3.6% of net revenues, compared to $143 million or 1.5% of net revenues in the first quarter 2010.
The improved operating performance during the first quarter was primarily due to increased volumes and positive pricing and mix. The improvement in pricing for vehicles such as the Jeep Grand Cherokee, was partially offset, however, by increased advertising investments and industrial costs associated with the volume ramp up of newly launched models, Chrysler cautioned.
During the media conference call, Marchionne was asked about the potential impact of fast-rising U.S. gas prices. The company has traditionally been dependent on minivans, pickups and SUVs for as much as two-thirds of its volume, but it has been shifting focus with models like the small Chrysler 200 and tiny Fiat 500.
“We’ve got significant improvements planned for 2012,” that should help Chrysler in a more fuel price-focused market, said the CEO.
But there are other potential problems that could hit the maker in the months to come, including the ongoing shortage of Japanese-made parts. The entire auto industry is dependent, to some degree, on those goods, especially plastic and rubber parts and electronic chips used in engine and other digital control systems.
“Chrysler could lose between 50,000 to 100,000 vehicles due to parts shortage created by the Japanese earthquake,” Marchionne acknowledged.
During the first quarter, Chrysler’s net revenues increased 35% to $13,124 billion compared to the first quarter of 2010. The increase was primarily due to increased volumes and positive pricing and mix resulting from the successful reception of the 16 all-new or significantly refreshed products it put into the marketplace.
A positive note came in Chrysler’s earnings before interest taxes and depreciation and amortization, or EBITDA, which hit $1.17 billion or 8.9% of net revenues, reflecting a $384 million improvement from Q1 2010. In another sign of the improvement in the company’s financial health, free cash flow for the first quarter totaled $2.5 billion reflecting primarily the improved cash from operations as a result of increased shipments, partially offset by capital expenditures.
Chrysler’s world-wide sales increased 18% to 394,000 in first quarter. World-wide vehicle shipments also increased 28% and while that meant an increase in unsold dealer inventory, the days supply remained a very manageable 67 days.
Chrysler announced on April 12 that Fiat’s ownership interest in the company increased from 25% to 30% upon Chrysler’s achievement of the second of three performance-related milestones outlined in an amendment to its June 10, 2009 LLC Operating Agreement.
The second milestone required Chrysler Group to achieve cumulative revenues of more than $1.5 billion attributable to company sales outside of Canada, Mexico and the United States after June 10, 2009. It was also required to enter into agreements related to the distribution of Chrysler Group vehicles in Europe and Brazil, and the pooling of Chrysler Group and Fiat vehicle fleets in the European Union for CO2 emissions ratings.
Fiat then announced last week that it plans to fully repay its loans from the United States and Canadian governments during the second quarter of 2011, which would bring the Italian maker’s stake to 46%.
Fiat’s ownership interest will increase again, to 51%, upon the company’s meeting the final performance-related milestone which is the launch of a model getting a minimum 40 mpg. That is expected to occur during the fourth quarter of 2011. (Treasury Sec. Geithner visits a Jeep plant and learns more about the bailout repayment. Click Here for more.)
While Marchionne has declined to set a specific date for taking Chrysler public again, that is expected to occur after Fiat assumes majority control.