Fiat Chrysler's lower cash forecast overshadows the special dividend pledge

MILAN / DETROIT (Reuters) – Fiat Chrysler (FCA) reported better-than-expected results for the third quarter, pledging to pay € 2 billion ($ 2.3 billion) in special dividends, but a lower net cash flow Forecast and its excessive dependence on the North American market weighed on its shares.

FILE PHOTO: A Fiat Chrysler Automobiles (FCA) sign is seen at its US headquarters in Auburn Hills, Michigan, USA May 25, 2018. REUTERS / Rebecca Cook / File Photo

Milan listed shares in FCA (FCHA.MI) closed 3.2 percent on Tuesday.

The Italian-American car maker confirmed its sales and earnings forecasts for the year, but lowered its net cash estimate from around 3 billion euros to 1.5 to 2.0 billion euros, pointing to production adjustments and pension contributions.

He promised the special dividend after he had agreed last week to sell the Magneti Marelli parts unit to Japan's Calsonic Kansei for 6.2 billion euros.

The sale was the first big deal since Mike Manley took office in July after his longtime boss Sergio Marchionne fell ill and later died of complications after surgery.

Manley said the sale of Magneti Marelli has put FCA in the strongest position since its inception in 2014, making its liquidity position comparable to that of its peers.

The deal also reaffirmed its commitment to fulfill the FCA strategy as an independent company by 2022, Manley added.

"Completing this transaction puts us in a much stronger position … our goal is to fulfill this five-year plan, to fulfill our obligations as an independent (corporate) entity," he said on a call with analysts when looking for a future they asked for fusion plans.

The special dividend comes at the ordinary dividend of 20 percent of the profit, which the company has already promised early next year. Both still have to be approved by the Management Board and the shareholders.

The world's seventh-largest carmaker announced that its earnings before interest and taxes (EBIT) increased 13 percent to € 1.995 billion in the period from July to September, compared to € 1.87 billion in a Reuters analyst survey.

FILE PHOTO: A Fiat Chrysler Automobiles (FCA) sign is seen at the US headquarters in Auburn Hills, Michigan, USA May 25, 2018. REUTERS / Rebecca Cook / File Photo

Sales rose 9 percent, ahead of expectations, supported by higher deliveries of the new Jeep Wrangler and Cherokee models and the new RAM 1500 pickup.


North America generated 97 percent of profit in the quarter, and the region's operating profit margin increased from 8.0 percent in the previous year to 10.2 percent as a shift in sales of more trucks and SUVs continued to pay off.

However, over-reliance on one region worried some.

"This is now a one-region story, unless you believe that other parts are ripe for a turnaround," said Bernstein analyst Max Warburton. "While the US delivered spectacularly, the news from elsewhere is not encouraging."

Both Europe and Asia reported an operating loss.

The activities of the FCA in Europe have been affected by the transition to more stringent emissions tests, which became compulsory from the beginning of September.

The weakness of the Chinese market weighed on FCA's performance in Asia and hit sales of the luxury brand Maserati. The brand margin fell from 13.8 percent in the previous year to 2.4 percent.

Manley said he sees Europe as a big plus for Europe.

He also expects progress at Maserati in the second half of next year, adding that the product remained competitive but was plagued by issues related to its positioning and management.

The FCA expects an increase of around € 850 million this year due to higher steel and aluminum prices, a similar effect in 2019.

Group net income declined 38 percent during the quarter as the FCA provided 713 million euros for potential costs associated with discussions with US authorities about alleged diesel emissions violations – which the FCA denies. The levy does not constitute an agreed settlement, nor is an approval of liability, FCA added.

"(This provision) is below most expectations of a figure of more than 1 billion euros," said Evercore ISI analyst George Galliers in a note.

Additional reporting by Danilo Masoni; Cut by Keith Weir and Mark Potter

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