Fiat Cuts 2014 Profit Forecast as Automaker Plans NY Listing

Jan 29, 2014 11:58 am ET

(Updates with details from analyst call beginning in ninth paragraph.)

Jan. 29 (Bloomberg) -- Fiat SpA, which announced plans today for a primary listing on the New York Stock Exchange, cut its profit forecast for this year after posting fourth-quarter earnings that disappointed investors.

Fiat, which bought full control of Chrysler last week, said today that 2014 trading profit will be 3.6 billion euros ($4.9 billion) to 4 billion euros, lowering a goal set in 2012 for profit of 4.7 billion euros to 5.2 billion euros. The shares fell 4.1 percent.

The disappointing profit prospects underscore the rationale behind Chief Executive Officer Sergio Marchionne’s purchase of Chrysler to create a more global carmaker. Fiat today said the combined company will be renamed Fiat Chrysler Automobiles NV and based in the Netherlands.

Setting terms for the merger will be “the easiest step,” Erik Gordon, a professor at the University of Michigan’s business and law schools, said in an e-mail. “Actually selling cars globally is what Fiat must do, and that will take more than lawyers and their piles of paper.”

The Italian automaker posted fourth-quarter trading profit, or earnings before interest, taxes and one-time items, of 931 million euros, missing the 1.12 billion-euro average of six estimates compiled by Bloomberg, on plunging earnings in Latin America. The revised 2014 profit target is also lower than the 4.16 billion-euro estimate of 11 analysts.

Shares Plunge

The shares dropped 31 cents, the most since July 30, to 7.24 euros at the close of trading in Milan. The stock has gained 55 percent in the last 12 months, valuing the automaker at 9.05 billion euros.

The combined automaker will have a fiscal domicile in the U.K. for tax purposes, Fiat said today. The manufacturer aims to complete the New York listing by Oct. 1 and will also continue to have shares traded on the Milan exchange.

“Today we can say that we have succeeded in creating solid foundations for a global automaker,” Marchionne said in a statement. “An international governance structure and listings will complete this vision.”

Fiat, which won’t pay a dividend to maintain liquidity after the acquisition of Auburn Hills, Michigan-based Chrysler, will look at options to strengthen funding without resorting to a capital increase, Marchionne said on an analyst call.

The CEO said the group has several alternatives, including issuing mandatory convertible bonds and disposing of assets. Selling a stake in the Ferrari supercar brand is “highly unlikely but possible,” he said.

Latin America

Fourth-quarter trading profit in Latin America plunged 82 percent to 44 million euros as Fiat faces stiffer competition from the likes of Volkswagen AG and Hyundai Motor Co. The Latin American drop swamped a profit gain in North America, where Chrysler’s performance was lifted by the new Jeep Cherokee, which began deliveries in October.

Chrysler’s fourth-quarter operating profit was $1.1 billion, an increase of 51 percent. Chrysler forecast operating profit this year in the range of $3.7 billion to $4 billion. Profit in 2013 was $3.18 billion.

Marchionne, 61, wants to transform Fiat into a manufacturer with the scale to challenge the likes of General Motors Co. and Volkswagen in global auto sales. Fiat, which owned 58.5 percent of Chrysler prior to the full takeover this month, relies on the U.S. business for profit because of losses in Europe amid a six- year car-market contraction in the region.

Upscale Push

Fiat bought the 41.5 percent Chrysler stake held by a United Auto Workers retiree health-care trust to gain full control of the U.S. business. The combination creates the world’s seventh-largest auto manufacturer.

A three-year business plan will be presented in May outlining spending of as much as 9 billion euros to end losses in Europe with the introduction of upscale models, as well as to fund an expansion in Asia. Fiat’s Europe losses narrowed to 50 million euros in the final three months of 2013 from a deficit of 120 million euros a year earlier, aided by cost cuts as deliveries fell 5 percent.

“A journey that started over a decade ago, as Fiat sought to ensure its place in an increasingly complex marketplace, has brought together two organizations each with a great history in the automotive industry and different but complementary geographic strengths,” Chairman John Elkann said in the statement.

--With assistance from Francine Lacqua in London and Chris Reiter in Berlin. Editors: Chad Thomas, Jamie Butters