Fiat SpA (F), the Italian carmaker that controls Chrysler Group LLC, lowered its profit target for 2013 as sales in Brazil slumped and losses in Europe persisted.
Full-year trading profit, or earnings before interest, taxes and one-time gains or costs, will miss an earlier forecast by as much as 13 percent, Turin-based Fiat said today in a statement. Third-quarter earnings on that basis fell 9.4 percent to 816 million euros ($1.12 billion).
“Fortunately for Marchionne, Fiat owns Chrysler,” said Andrea Sianesi, associate dean at the Milan Polytechnic’s business school. “Fiat used to depend on Brazil. Now it has to rely on North America as Brazil is slowing down.”
Chief Executive Officer Sergio Marchionne has spent the past four years working to combine Fiat and Auburn Hills, Michigan-based Chrysler to create a global player with the scale to compete with Toyota Motor Corp. (7203), General Motors Co. (GM:US) and Volkswagen AG. (VOW) The strategy is also designed to make Fiat less dependent on its mass-market businesses in Europe, where its deliveries declined 3.4 percent in September, and Brazil, where it posted an 11 percent drop last month.
The shares fell 2.2 percent to 5.70 euros in Milan trading. The stock has climbed 50 percent this year, valuing the company at 7.13 billion euros.
Fiat forecast full-year trading profit in a range of 3.5 billion euros to 3.8 billion euros. That’s below the company’s previous range of 4 billion euros to 4.5 billion euros.
Third-quarter trading profit missed the 903 million-euro average estimate of five analysts surveyed by Bloomberg News. Profit in Latin America tumbled 52 percent to 165 million euros, while the loss in Europe narrowed to 165 million euros from 238 million euros.
Fiat’s sales rose 1.4 percent to 20.7 billion euros. The company forecast full-year revenue of about 88 billion euros, compared with the previous range of 88 billion euros to 92 billion euros.
VW, Europe’s largest carmaker, today reported third-quarter earnings that surged 20 percent. Profit from the Porsche car brand and tighter reins on spending helped the company exceed analyst estimates. GM also beat expectations as redesigned pickups boosted earnings in North America.
Fiat owns 58.5 percent of Chrysler and Marchionne, 61, is seeking to buy the remaining 41.5 percent stake held by a United Auto Workers retiree health-care trust. The takeover has been delayed by a valuation dispute over the labor group’s stake, and the trust is forcing an initial public offering of part of its holding, complicating the CEO’s plan.
Marchionne, who is also runs Chrysler, said today that he intends to complete the IPO process by the end of the year. The preparations for a public listing are part bluff by the executive as he seeks to establish a market value for Chrysler and pay less than what the trust is seeking.
Chrysler reported today that third-quarter profit rose 22 percent on higher demand for Jeep Grand Cherokee sport-utility vehicles and Ram pickups, helping Fiat increase net income 11 percent to 189 million euros. Excluding the American carmaker, Fiat would have reported a net loss of 247 million euros.
A merger with its U.S. unit would allow Fiat, which also owns automaker Alfa Romeo and the Maserati and Ferrari supercar brands, to tighten cooperation with Chrysler and its Dodge and Jeep nameplates and access the U.S. carmaker’s cash reserves. Marchionne plans to present a new five-year plan for the group after the first quarter.
“All this smoke will be cleared” by then, Marchionne said today, when asked if the timing of the presentation was related to the Chrysler IPO.
Fiat’s net industrial debt increased 24 percent to 8.3 billion euros during the third quarter, the company said, forecasting that net debt at the end of 2013 will be in a range of 7 billion euros to 7.5 billion euros. The previous target was about 7 billion euros. Delays in the rollout of Chrysler’s Jeep Cherokee added about 500 million euros to debt in the third quarter, Marchionne said.
“Without the contribution from Chrysler, the combination of Europe, Latin America, Asia Pacific and even the profitable luxury brands cannot generate sufficient trading profit to cover the current level of financial expense,” Harald Hendrikse, an analyst at Nomura in London, said in a report on Oct. 15.
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