Fiat Chrysler's Jeep-Led Profit Surge Clouded by Higher Debt

  • Debt rises amid investments to increase Jeep, truck production
  • Adjusted Ebit nearly doubles as Jeep growth offsets car slump

Fiat Chrysler Automobiles NV’s profit surged in the first quarter on demand for Jeep sport utility vehicles, while debt rose as the automaker spends to shift production away from sedans and hatchbacks.

Adjusted earnings before interest and taxes nearly doubled to 1.38 billion euros ($1.56 billion) from 700 million euros a year ago, excluding profits from former unit Ferrari, the Italian-American carmaker said in a statement on Tuesday. That compares with an average estimate of 1.23 billion euros, based on forecasts from seven analysts.

Net industrial debt jumped to 6.59 billion euros from 5.05 billion euros at the end of 2015. Fiat Chrysler’s balance sheet was hit by foreign-exchange headwinds and upfront investments to increase production of pickups and SUVs. The only indebted major carmaker said its financial situation would improve in the course of the year.

“The increase of debt is the negative news,” said Vincenzo Longo, strategist at IG Group in Milan. Fiat Chrysler shares fell 2.6 percent to 7.04 euros in Milan, extending the stock’s drop for the past 12 months to 31 percent.

After calling off efforts to pursue a merger with General Motors Co., Chief Executive Officer Sergio Marchionne has made eliminating debt his highest priority before he leaves the post at the end of 2018. Achieving the goal would put Fiat Chrysler in a better position to find a partner. Marchionne contends that the auto industry wastes too much money and needs to consolidate to finance investment in new technology.

“We remain committed to debt reduction” and will “hopefully be sitting on cash by 2018,” Marchionne said on a conference call with analysts.

Ram, Jeep Rampup

To push for Fiat Chrysler’s 2018 targets, which include more than doubling net income to about 5 billion euros, Marchionne plans to seek partners to produce the Dodge Dart and Chrysler 200 cars. The move would free up two plants for assembly of more-profitable Ram pickups and Jeep sport utility vehicles. The company sees relatively low gasoline prices as a long-term trend supporting Americans’ demand for bigger vehicles.

The U.S. has become critical to Fiat Chrysler as plans to expand Alfa Romeo into a global luxury-car brand have been slow to get on track and deliveries in once-lucrative Brazil have slumped. Fiat Chrysler’s first-quarter sales rose 3 percent to 26.6 billion euros, even as deliveries slipped 1 percent to 1.09 million vehicles.

Fiat Chrysler, which started producing the compact Jeep Renegade in China in April, will continue its global expansion of the brand. As for Alfa Romeo’s growth, the carmaker will “hopefully” unveil the sporty Italian nameplate’s first SUV by the end of the year, Marchionne said.

Fiat Chrysler stuck to its 2016 guidance, despite plans to recall over 1 million cars globally, including 812,000 in the U.S., to bolster a warning system to prevent drivers from leaving the vehicle without putting the gear shift in “park.” The manufacturer forecast this year’s adjusted Ebit will rise to more than 5 billion euros, compared with 4.8 billion euros in 2015 excluding Ferrari. Net industrial debt is expected to be less than last year’s 5 billion euros without Ferrari.

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