Fiat makes Q3 profit of $236M, raises outlook

AP News
Posted: Oct 21, 2010 2:09 PM
Fiat makes Q3 profit of $236M, raises outlook

Italian automaker Fiat Group SpA, which controls U.S.-based Chrysler LCC, raised its 2010 forecasts after net profits rose to euro170 million ($236 million) from euro21 million a year earlier due to higher sales of trucks and tractors.

As a result of the strong results, Fiat raised its 2010 targets, saying revenues would top euro55 billion _ euro5 billion more than previously stated. It also said trading profit would be at least euro2 billion, nearly double previous guidance of euro1.2 billion.

"Fundamentally, we've had an outstanding third quarter," CEO Sergio Marchionne told analysts. Raising the outlook, he said, indicated "what we consider a permanent change in trading conditions in the market in which we function."

Fiat shares rose 3.92 percent to euro12.18 in Milan trading on the news.

It was Fiat's second consecutive quarter of positive earnings, as the auto industry struggles to recover from the severe downturn during the global recession.

The Turin-based company also said its plans to spin off the industrial business, including CNH farm and construction machinery, and Iveco trucks, from the core auto business was on track to take effect in January.

Marchionne said the group's performance had "set the stage" for the demerger.

"There are no obstacles we can see today to the completion of the program. On Jan. 3, we should have two separate stocks on representing Fiat Industrial and the other representing the carside."

Fiat said group revenues were up 12 percent to euro13.5 billion in the period, with the strongest results in the farm and truck businesses. Revenues at its CNH farm machinery business rose 32 percent to euro3 billion while revenues at the trucks unit Iveco were up 15 percent to euro2 billion, with all regions contributing.

Auto revenues were flat at euro6.6 billion, with the contracting passenger car market offset by performance in Brazil, strong sales of light commercial vehicles and favorable exchange rates, Fiat said. Trading profit for the car business was euro130 million, down 16 percent from euro155 billion _ the only business that suffered.

Marchionne noted that Ferrari trading profit was up 46 percent to euro76 million, due to higher sales volumes and cost cutting, with a 17 percent trading margin _ approaching the goal of 18 percent.

"Luxury brands performed well, both Ferrari and Maserati, and certainly in line with a market that is fundamentally recovering on a global scale," Marchionne said.

Despite persistent speculation, Marchionne repeated he is not interested in selling the Alfa Romeo brand, which he sees as key to Fiat's integration with Chrysler. He noted Alfa sales were "up slightly, due mostly to the four-door hatchback Giulietta, "the most technologically advanced car we have," which have reached 20,000 sales and 36,00 orders since its launch last spring with a goal of 90,000 units a year.

The Giulietta platform will be a key component of new Chrysler launches, and the Chrysler partnership will give the brand access to bigger car platforms that it has lacked, he said.

Car deliveries were down 15.7 percent to 391,000, with steep declines in Italy and Germany as the expiration of cash-for-clunkers schemes took the bottom out of sales, particularly of alternative fuel vehicles where Fiat is market leader in Europe.

Light commercial vehicle sales rose 21 percent to nearly 90,000 units.

Fiat shareholders have approved the separation of the auto and industrial vehicle businesses into two distinct companies, a key step toward CEO Sergio Marchionne's goal of creating a global car company with Chrysler LCC able to produce 6 million cars a year by 2014.

The demerger marks a historic shift for Fiat, Italy's largest employer, which was founded 111 years ago as an auto company and grew into a conglomerate encompassing a broad range of products all powered by engines, from Ferrari sports cars to CNH farm equipment.

Marchionne has said the move will give both businesses greater flexibility to seek strategic alliances.

The spinoff of the industrial side, which would take effect Jan. 1, will create Fiat Industrial SpA, comprising CNH farm and construction equipment, Iveco trucks and FPT Industries and Marine activities.

Fiat SpA, on the other hand, will include Fiat Group Autos, the owner of Fiat, Alfa and Lancia, as well as Maserati and 85 percent of Ferrari, plus components and other related assets.

Marchionne said debt of the new companies would likely be 60 percent to Fiat Industrial and 40 percent to the car business, rather than the 50-50 split indicated previously.