FCA's profits rise in Q3 to achieve record margin
FCA's third-quarter 2017 results were for flat global shipments, lowered revenue and record adjusted EBIT and increased adjusted net profit. Total company adjusted EBIT margin reached 6.7%, the NAFTA margin reached 8.0%.
IHS Markit perspective
- Significance: FCA released its financial results for the third quarter of 2017. Shipments were flat y/y. Quarterly revenue slipped 1.6% to EUR26.4 billion. Adjusted net profit increased by 24.6% over the quarter, driving adjusted EBIT margin to 6.7%.
- Implications: Regionally, all segments were profitable for the quarter. There was record adjusted EBIT margin in NAFTA, despite flat shipments.
- Outlook: With third-quarter results, FCA confirmed full-year guidance for 2017, and expects progress in 2017 to enable it to meet 2018 financial targets. FCA also confirmed that the Jeep Wrangler and new Ram 1500 are on track for fourth-quarter 2017 and first-quarter 2018 production starts, respectively, and that progress toward the all-new Grand Cherokee and additional Grand Wagoneer are on track. Marchionne also suggested that a new smaller-than-Levante SUV will come for Maserati in 2020. FCA also highlighted its recent activity relative to self-driving cars, in the BMW partnership and Magneti Marelli's purchase of LiDAR company Leddartech.
Fiat Chrysler Automobiles (FCA) released its financial results for the third quarter of 2017, reporting increase in net profit and adjusted EBIT (earnings before interest and taxes). Quarterly shipments were flat, at 1.12 million units, and revenues slipped 1.6% year on year (y/y). Shipments were down in NAFTA, with a cooling US market, wind-down of the prior Jeep Patriot and Compass in the US and some lost production of the Jeep Cherokee as production transitioned from one plant to another in the US. Adjusted net profit increased by 24.6% y/y for the quarter.
Net revenues came in at EUR26.4 billion, down 1.6% y/y; FCA noted that the decline was due to lower volumes and unfavourable currency exchange, partially offset by improved mix. Third-quarter net revenue declined y/y in the NAFTA, APAC, EMEA regions and for the Maserati brand, with only the LATAM region showing improved revenues. Adjusted EBIT for the quarter increased 17.2% y/y to EUR1.8 million.
Adjusted EBIT improved in all regions excpt North America, which was stable y/y. In North America (NAFTA), third-quarter 2017 adjusted EBIT was even at EUR1.28 million, despite 6% lower shipments volumes on planned fleet volume reductions, capacity realignment and transition to the all-new Compass. Vehicle mix has been positive with the company's exit from the mid-size car market; increased incentives partially offset improvements in pricing, and negative currency transaction affected adjusted EBIT. Adjusted EBIT margin for the NAFTA region improved despite the lower sales, coming in at 8.0% rather than the 7.6% of the third quarter of 2016. NAFTA remains FCA's largest contributor to revenues, although lower shipments have reduced its contribution. NAFTA's EUR16.1-billion third-quarter 2017 revenue accounted for 61.1% of revenues, compared with 62.6% in the third quarter of 2016. Shipments in the third quarter fell 9.1% y/y. FCA delivered 596,000 vehicles in NAFTA in the third quarter of 2017, compared with 656,000 units in the third quarter of 2016. North America also delivered the highest adjusted EBIT, contributing 73% of adjusted EBIT in the third quarter of 2017, compared with 85% in the third quarter of 2016 and 84.7% of full-year 2016 adjusted EBIT. FCA's reliance on NAFTA is declining thanks to the globalisation of Jeep and improvements in LATAM and Maserati.
Second-quarter adjusted EBIT grew more than 400% in Asia Pacific (APAC), largely on insurance recoveries from the impact of an explosion at a Chinese port in 2016. Alfa Romeo is also being introduced and contributed to increased sales, up from 39,000 units to 43,000 units. Combined joint-venture (JV) and imported volume in China reached 66,000 units in the third quarter. Jeep now builds three products in China (Cherokee, Compass, Renegade), which has shifted marketing costs to the JV, while imported products have returned better vehicle mix; increased industrial costs and launch activities surrounding Alfa Romeo continued to drag on adjusted EBIT in the region. Adjusted EBIT margin improved, from 2.4% to 13.9% - taking out the impact of the insurance recovery, CFO Richard Palmer said that margin would have been 6.4%, a record for the region. EMEA adjusted EBIT rose as well, up 22% to EUR127 million. Net revenue declined 9.1% to EUR782 million, however.
Shipments decreased in EMEA on market conditions, although FCA noted the positive impact of the Alfa Romeo Stelvio and Jeep Compass. Adjusted EBIT was improved by positive vehicle mix, purchasing and manufacturing efficiencies, and reduced advertising costs, although higher incentives were a hindrance. Margin in EMEA reached 2.6%, compared with 2.1% in the third quarter of 2016. Fiat shipments increased in EMEA, up 5.2% to 326,000 units. Net revenues slipped 2.0% to EUR5.0 billion in the third quarter of 2017. Adjusted EBIT (EUR127 million) gained 5.8% y/y.
The Latin America (LATAM) region showed positive adjusted EBIT in the third quarter of 2017, compared with a loss in the third quarter of 2016, as Brazil improved and FCA shipments increased. In May 2017, the Fiat Argo hatchback was launched to replace the Punto, contributing to the positive mix for the quarter along with the Jeep Compass and Fiat Mobi. In the third quarter of 2017, FCA delivered 139,000 vehicles in LATAM, compared with 124,000 in the third quarter of 2016. New products meant positive vehicle and mix and pricing improved, although FCA reported increased production costs on inflation.
Maserati's adjusted EBIT sharply improved for a third consecutive quarter, although higher sales of the Levante were offset by lower Quattroporte volume. In the third quarter of 2017, FCA reported adjusted EBIT of EUR113 million for Maserati; adjusted EBIT margin improved to 13.8%, although quarterly revenue slipped to EUR821 billion. Maserati's second-quarter shipments were up to 10,900 units, compared with 10,700 in the third quarter of 2016. Maserati sold more vehicles in North America than China in the third quarter of 2017, at 3,100 for North America and 3,000 in China. Speaking to Maserati's performance during an analyst call on earnings, CEO Sergio Marchionne confirmed that Maserati is on track to add a smaller sport utility vehicle (SUV) to its line-up by 2020.
FCA's Components businesses' net revenues were flat in the third quarter of 2017, at EUR2.4 billion, with adjusted EBIT growing to EUR127 million. These improvements led to margin improving from 4.7% in the third quarter of 2016 to 5.3% in the third quarter of 2017. FCA did not provide details of component section performances, though indicated that all businesses saw higher volumes. Adjusted EBIT improvement was on higher net revenues and industrial efficiencies. Addressing the issue of whether to spin off Magneti Marelli, Marchionne again said the supplier does not need to be part of the automotive division, saying, "The company or its value belongs to the shareholders." These comments follow on from Marchionne addressing the issue earlier in October.
Outlook and implications
With the third-quarter results, FCA confirmed its full-year guidance for 2017, and expects progress in 2017 to enable it to meet its financial targets for 2018. FCA also confirmed that the Jeep Wrangler and new Ram 1500 are on track for fourth-quarter 2017 and first-quarter 2018 production starts, respectively, and that progress toward the all-new Grand Cherokee and additional Grand Wagoneer are on track. Marchionne also suggested a new smaller-than-Levante SUV will come for Maserati in 2020. FCA also highlighted its recent activity relative to self-driving cars, in the BMW partnership and Magneti Marelli's purchase of LiDAR company Leddartech.
FCA joined the BMW-led coalition for self-driving cars in October 2017, with Marchionne telling analysts that FCA has not been a laggard relative to this technology, but rather that the company was simply focused and strategic as to when and how to get involved. While FCA addressed the new development in the earnings call, no further specifics were provided other than what is already known about the project; Marchionne declined to quantify the capital and human or intellectual property investment FCA is making into the group.
FCA full-year guidance for 2017 is for net revenues between EUR115 and EUR120 billion, adjusted EBIT of more than EUR7.0 billion, adjusted net profit of more than EUR3.0 billion and a reduction in net industrial debt to less than EUR2.5 billion.
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