Moving out of Sergio's shadow
Photo credit: Bloomberg
|Andrea Malan is Automotive News Europe's Italy correspondent.|
Mike Manley took over as CEO of Fiat Chrysler Automobiles from Sergio Marchionne on July 21. Marchionne, the architect of the Fiat-Chrysler merger, passed away unexpectedly four days later. That same emotional day, Manley had to present FCA’s disappointing second-quarter financial results. He also had to lower the guidance on operating profits for 2018 and net cash at year-end.
In the second quarter, earnings before interest and taxes fell 20 percent short of analysts’ consensus expectations because of operational issues: higher-than-expected launch costs for the new Ram 1500 pickup, lower China deliveries because of higher tariffs and a 150 million euro decline in Maserati’s operating profit.
Manley and Chief Financial Officer Richard Palmer cut the EBIT forecast to 7.5 billion to 8 billion euros from 8.7 billion euros and also reduced the expected net cash at year-end from 4 billion euros to 3 billion euros.
Earnings revisions by a new CEO are nothing new. After taking the Ford CEO role from Alan Mulally on July 1, 2014, Mark Fields took just three months to revise downward Ford’s profit estimates for the year. In the case of FCA, the disappointing quarterly numbers took the market by surprise, pushing shares down 15 percent on the day.
Could this new guidance on 2018 results be the final one, or would it be in FCA’s best interest to reset short-term expectations to a level the new management team deems correct?
After the significant share drop at the end of July and no recovery in early August, Manley will have to maintain a balancing act in the next few months between the desire not to shock the markets a second time and the need to win their confidence by hitting targets quarter after quarter.
Manley has an additional problem: This downward revision of the guidance not only means lower results for 2018 but also requires an even better performance from 2019 to 2022. That’s because the original guidance for 2018 is also the starting point to reach the demanding 2022 targets of 13 billion to 16 billion euros EBIT and 19 billion to 21 billion euros in net industrial cash.
Ferrari, which Marchionne also led and which shares its main shareholder -- the Agnelli-Elkann family – with FCA, has already taken a more prudent path. Louis Camilleri, the former Philip Morris chairman who replaced Marchionne as Ferrari CEO on July 21, sought to dampen expectations for profit growth. In commenting on Ferrari’s record second-quarter results, Camilleri called Marchionne’s target of 2 billion to 3 billion euros in earnings before interest, taxes, depreciation and amortization by 2022 “aspirational.”
EBITDA was the only preview that Marchionne gave of Ferrari’s new plan, expected to be detailed Sept. 17. Manley will have a more difficult task in distancing himself from the FCA targets set by his predecessor. Although Camilleri did sit on Ferrari’s board for over three years, he had no operational role. In contrast, Manley worked for more than nine years in close contact with Marchionne and had an active role in working out the details of FCA’s 2018-22 business plan presented June 1 in Balocco, Italy.
Marchionne often set aspirational unit sales targets that FCA often missed, but he seldom missed a financial target. Another CEO often praised by Marchionne himself, PSA Group’s Carlos Tavares, follows a different path by trying to underpromise and overdeliver, both from an operational and a financial standpoint. Will Manley try to change course from his predecessor and mentor? He might decide to take a more conservative approach and postpone any further revision of FCA’s long-term targets to the 2018 full-year analyst conference scheduled for late January 2019.
You can reach Andrea Malan at email@example.com.