Fiat Quarterly Profit Misses Estimates on Drops in Americas

Jul 30, 2014 6:31 am ET

(Updates with earnings before interest and taxes in second paragraph, analyst’s comment in fourth.)

July 30 (Bloomberg) -- Fiat SpA, whose shareholders vote in two days on merging the Italian carmaker with U.S. unit Chrysler Group LLC, reported profit that missed estimates as sales fell in Brazil and spending rose in the U.S. and Canada.

Second-quarter earnings before interest and taxes fell 10 percent from a year earlier to 961 million euros ($1.29 billion), Turin-based Fiat said today in a statement in which it reiterated its full-year forecast. Profit was less than the 1.01 billion-euro average of five analyst estimates compiled by Bloomberg.

The combination with Chrysler is part of Fiat Chief Executive Officer Sergio Marchionne’s plan to create a carmaker able to compete with global leaders such as General Motors Co. The project focuses on rolling out higher-priced Alfa Romeo sedans, Maserati sports cars and Jeep sport-utility vehicles. Growth has been hampered by an economic slowdown in Brazil, while the cost of vehicle discounts hurt profit in the North American Free Trade Agreement market.

“A large part of the miss came from Nafta, where the company managed to make less money” even as revenue rose, George Galliers, an analyst at ISI Group in London, said in an e-mailed note. Maserati’s profitability was also disappointing as Fiat ramps up volumes and sells more lower-priced Ghibli sedans, he said.

Stock Declines

Fiat fell as much as 2.6 percent, reversing a gain earlier in the day, and was trading down 1.6 percent at 7.49 euros at 12:25 p.m. in Milan. That pared the stock’s gain this year to 26 percent, valuing the carmaker at 9.36 billion euros.

Net income jumped 23 percent to 175 million euros, missing analysts’ average estimate of 313 million euros. Revenue increased 4.7 percent to 23.3 billion euros.

Latin American vehicle sales fell 21 percent, with the decline in Brazil matching the regional drop, while revenue slid 23 percent and profit plunged 72 percent. North American Ebit fell 18 percent because of currency effects, spending on incentives to sell older models, advertising costs to promote new vehicle, Fiat said. In contrast, revenue in the region gained 6.6 percent.

Lower profit in the Nafta region “undermines the whole bull story about margins catching up with” profitability at Ford Motor Co. and GM, Rabih Freiha, an analyst at Exane BNP Paribas in London, said in an e-mailed report. “If it’s pricing, as in the first quarter, then this would be a very negative signal.”

Fiat’s luxury division, which includes the Maserati and Ferrari brands, posted a 58 percent jump in earnings while deliveries almost tripled.

The company stuck to a goal of increasing Ebit excluding one-time items to a range of 3.6 billion euros to 4 billion euros in 2014 from 3.39 billion euros last year.

--With assistance from Tommaso Ebhardt in Milan and Christoph Rauwald in Frankfurt.