Fiat Chrysler Automobiles NV plans to more than double profit and turn a debt burden into a cash surplus by 2018, standing by or upgrading targets described by some analysts as coming from “Fantasyland.”
Despite a sales slowdown in China, tumbling demand in Brazil and the spinoff of Ferrari NV, Chief Executive Officer Sergio Marchionne stuck to an earnings target first communicated in 2014. The Italian-American carmaker forecast adjusted net profit of between 4.7 billion euros and 5.5 billion euros ($6 billion) in 2018, compared with 1.7 billion euros last year excluding the Ferrari supercar unit.
While Marchionne didn’t reiterate a goal of boosting deliveries to 7 million cars in 2018, he did raise his target for net industrial cash to at least 4 billion euros. That would mark a swing from debt of 5 billion euros last year.
To generate all that profit and boost margins, Marchionne said the automaker would seek partners to produce its Dodge Dart and Chrysler 200 cars, freeing up two assembly plants for assembly of more-lucrative Ram pickups and Jeep sport-utility vehicles. Marchionne and Chief Financial Officer Richard Palmer see relatively low gasoline prices as a long-term trend supporting Americans’ demand for light trucks.
The Michigan factory that makes the 200 will be idle for six weeks starting Feb. 1, due to excess inventory, spokeswoman Jodi Tinson said by telephone. U.S. sales of the car slumped 47 percent in December from a year earlier, after a 28 percent drop in November.
New Targets
The CEO, who has run Fiat since 2004, has made implementing a 48 billion-euro investment and restructuring plan his final task after abandoning an effort last year to entice General Motors Co. into a merger. Amid China’s woes and with Fiat Chrysler’s sales in Brazil down 30 percent last year, Marchionne has shifted investment to Jeep and away from the Alfa Romeo and Maserati marques, which were meant to anchor a push into upscale cars.
*T 2018 Targets New Old Adjusted net profit 4.7 billion euros - 5.5 billion euros 4.7 billion euros - 5.5 billion euros, including Ferrari Adjusted Ebit margin 6.4%-7.2% 6.6%-7.4% Revenue 136 billion euros 132 billion euros Net industrial debt/cash 4 billion euros - 5 billion euros cash 0.5 billion euros - 1 billion euros debt
*T
Achieving his goals will require a leap in profitability. Fourth-quarter margins shrank as Fiat Chrysler took a 834 million-euro charge to close factories in North America temporarily to prepare for new models. The return on sales, excluding the Ferrari supercar unit spun off this year, narrowed to 1.6 percent from 3.6 percent a year earlier. Excluding one- time costs, the margin was 5.4 percent, Fiat said.
“Fiat’s one-time charges are likely to be a series of one- time charges,” said Erik Gordon, a business professor at the University of Michigan.
‘Muted’ Outlook
Fiat Chrysler isn’t expecting to close the gap to its goals much this year. The carmaker forecast 2016 adjusted net profit will increase about 12 percent to more than 1.9 billion euros, while net debt will be lower than last year’s 5 billion euros.
The 2016 outlook is “muted,” George Galliers, a London- based analyst with Evercore ISI, said in a note. “Investors will likely be disappointed that a higher range was not given.”
The shares fell 1.1 percent to $7.53 at 2:22 p.m. in New York. Fiat Chrysler has been the worst-performing major automaker so far this year, shedding 17 percent of its value from Dec. 30, the last trading day before the Ferrari spinoff was completed, through Tuesday.
--With assistance from Jennifer Surane and John Lear.
To contact the reporter on this story: Tommaso Ebhardt in Milan at tebhardt@bloomberg.net To contact the editors responsible for this story: Vidya Root at vroot@bloomberg.net Chris Reiter, Jamie Butters
