Fiat profit boosted by Chrysler as Italian car market shrinks
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MILAN -- Fiat S.p.A., which rescued Chrysler Group from collapse in 2009, reported quarterly profit growth that was boosted by the U.S. automaker as Italy's car market shrank.
Earnings before interest, taxes and one-time items, which Fiat calls trading profit, rose to 851 million euros ($1.21 billion) from 256 million euros a year earlier, the carmaker said in a statement Thursday.
Sergio Marchionne, CEO of both automakers, raised Fiat's full-year target for trading profit to more than 2.1 billion euros on the strength of Chrysler's earnings. Chrysler's third-quarter trading profit contributed 65 percent of overall earnings.
Group revenue more than doubled to 17.6 billion euros as Fiat fully consolidated Chrysler's results for the first time. The carmaker reiterated a forecast for 2011 sales to exceed 58 billion euros.
"Chrysler is driving earnings and rose its guidance," said Emanuele Vizzini, chief investment officer at Investitori Sgr in Milan. "For Fiat, while trading profit is better than expected, revenues are weak as its problems in Italy are emerging."
The Italian passenger car market contracted 6.1 percent in the third quarter, Fiat said.
Share conversion
Fiat's biggest shareholder, Exor S.p.A., said in a statement on Thursday, that both Fiat and Fiat Industrial are proposing to convert preferred and savings shares into common stock. The plan may be regarded as a precursor to a full merger between Fiat and Chrysler.
Exor, the Agnelli family investment company whose CEO John Elkann is also Fiat Chairman, said it plans to keep its holdings in Fiat and Fiat Industrial above 30 percent.
Fiat posted a net loss of 46 million euros versus a profit of 170 million euros last year due to a 138 million euro write-down in the market of two stock-option related equity swaps and 57 million euros in extraordinary charges.
The carmaker's net industrial debt rose to 5.8 billion euros in the third quarter, of which 2.9 billion was Fiat excluding Chrysler.
Chrysler sales
Chrysler's rebounding sales are helping prop up Fiat. The American carmaker's third-quarter U.S. market share gained 1.8 percentage points to 11.4 percent, the company said.
Fiat's European market share in the period sank 0.6 percentage points to 6.5 percent. "Chrysler is making a fundamental contribution to Fiat's profit as it takes advantage of the improved U.S. and Canadian markets," Marchionne said earlier this week.
European automakers have reported mixed third-quarter results. Rival Volkswagen AG, Europe's largest carmaker, said Thursday that operating profit surged 46 percent to 2.89 billion euros on demand for Audi and VW brand SUVs in China and the U.S.
PSA/Peugeot-Citroen, Europe's second-largest carmaker, on Wednesday cut its 2011 auto profit target and said it may eliminate as many as 3,500 jobs.
Trading profit at Ferrari, Fiat's most profitable unit, rose 1.3 percent to 77 million euros, while Maserati's earnings doubled to 8 million euros. That compares with a 1.5 percent drop to 128 million euros for Fiat Automobiles, the mass-carmaker unit grouping the Fiat, Lancia and Alfa Romeo brands.
Rating downgrades
Fiat was downgraded one level by Fitch Ratings last week on concern that a combination with Chrysler will increase financial risk for the Italian carmaker. Fiat was lowered to BB, two steps below investment grade, from BB+, Fitch said. The rating company has a negative outlook on the manufacturer.
Moody's Investors Service and Standard & Poor's lowered their ratings on Fiat earlier this year, citing concerns that the integration with Chrysler will leave Fiat responsible for the American carmaker's debt.
Marchionne, while reaffirming plans to merge Fiat and Chrysler, said Oct. 19 the combination is not a "priority" and there's no timetable set to complete the process. Fiat expects to get to 58.5 percent by the end of the year after meeting performance targets set during the Chrysler bailout.
Source: Bloomberg
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