Chrysler Affirms Forecast After Quarterly Profit Declines

Chrysler Group LLC, grappling with declining shipments and higher product costs, reaffirmed its full-year forecasts after reporting first-quarter net income dropped 65 percent.

Chrysler’s net income slid to $166 million. Revenue for the quarter decreased 6 percent to $15.4 billion, the Auburn Hills, Michigan-based automaker said in a statement today. Adjusted operating profit fell 41 percent to $435 million. Chrysler held to its forecast for annual revenue of $72 billion to $75 billion and net income of about $2.2 billion.

Sergio Marchionne, chief executive officer of Chrysler and Fiat SpA, its majority owner, is relying on Chrysler and its 36 straight monthly U.S. sales gains, to offset losses at Fiat’s mass-market brands in Europe. Chrysler’s share of the U.S. market has risen for three straight years, reaching 11.4 percent in 2012, according to researcher Autodata Corp. Chrysler’s 2012 sales in its home market climbed 21 percent to 1.65 million.

Chrysler’s “disciplined production kept inventory at a reasonable level,” Richard Hilgert, an analyst for Morningstar Equity Research in Chicago, said in an e-mail. “The results were in line with my expectations, maybe a bit better.”

U.S. dealers had 66 days of inventory at the end of March, Chrysler said. That compares with 73 days at the end of December and 59 days at the end of March 2012.

Marchionne said on a Jan. 30 earnings call that shipment volume in the quarter would be hurt by introductions of the Jeep Compass and the Ram Heavy Duty pickup as well as preparation for bringing out the new Jeep Cherokee, which caused production of the predecessor Liberty to end last year.

Forecast Affirmed

“We need to clean up our act and move it on from here,” Marchionne said on a call today with analysts and investors. “We will get better as we move through 2013.”

Chrysler also said it expects to ship 2.6 million to 2.7 million vehicles and earn adjusted operating profit of about $3.8 billion this year.

Fiat said separately today that earnings before interest, taxes and one-time items, fell 23 percent to 618 million euros ($809 million) from 806 million euros a year earlier. That missed the 691 million-euro average of six analyst estimates compiled by Bloomberg.

Fiat stuck to a target to increase full-year profit to between 4 billion euros and 4.5 billion euros from 3.81 billion euros in 2012, even after the European auto market plunged 9.7 percent in the first quarter. The automaker expects deliveries in the region to decline 3 percent to 5 percent in 2013.

‘Rebuilt’ Company

Fiat fell 1.2 percent to 4.64 euros in Milan.

The company, based in Turin, Italy, rescued Chrysler through a government-brokered alliance in 2009. Fiat plans to end losses in Europe by 2015 at the earliest by boosting its offering of upscale vehicles.

“They have taken full advantage of a strong company that was in tough times,” Jim Press, former deputy CEO of Chrysler, said in a Bloomberg TV interview before Chrysler released results. “They’ve rebuilt it and the progress they made has been outstanding.”

Fiat is increasing its Chrysler holding and is asking the Delaware Chancery Court to help determine the value of a 3.3 percent stake held by the United Auto Workers retiree health-care trust. The trust contends the stake is worth at least $342 million while Fiat says the value is $139.7 million.

Marchionne is awaiting the court decision on the price of the stake before proceeding with his plan to buy the rest of Chrysler and merge the two carmakers. Fiat owns 58.5 percent of Chrysler and has exercised options to add 6.6 percent more. The CEO expects the Delaware court to rule on the case by the end of June.

‘Most Efficient’

Marchionne, in response to a question, said today he would prefer the combined Fiat-Chrysler have its primary listing in New York.

“It’s the most efficient capital market I can get my hands on,” Marchionne said on today’s call.

The CEO’s turnaround plan in Europe, where the automotive market is set to shrink for a sixth consecutive year, calls for 16 upscale cars, including an Alfa Romeo SUV, a small SUV from Chrysler’s Jeep unit and six models at the luxury Maserati division. The new vehicles will help fill capacity at Fiat’s under-used assembly lines in Italy.

Chrysler introduced 16 new or refreshed models in the 19 months after emerging from a U.S.-backed bankruptcy in June 2009.

Before it's here, it's on the Bloomberg Terminal.