Chrysler Posts Smaller-Than-Estimated Net Loss
Chrysler Group LLC, the U.S. automaker operated by Fiat SpA (F), reported an $84 million third-quarter loss that was smaller than analysts estimated as U.S. sales improved faster than for its American rivals.
The net loss in the three months through September was the smallest this year and less than half the $172 million loss in the second quarter, Auburn Hills, Michigan-based Chrysler said today in a statement. The average estimate of four analysts surveyed by Bloomberg was for a $129 million loss.
Sergio Marchionne, chief executive officer of Chrysler and Fiat, benefited from a 20 percent increase in U.S. sales in the quarter from last year, according to Autodata Corp., a Woodcliff Lake, New Jersey-based researcher. Chrysler raised its full-year operating profit forecast to about $700 million. Its operating profit for the first nine months was $565 million.
“The guidance looks conservative,” Max Warburton, an analyst with Sanford C. Bernstein in London, said in an e-mail today. Fourth-quarter operating profit should exceed the third quarter “absent any unexpected production interruptions or costs,” Warburton added.
Operating profit rose 31 percent from the second quarter to $239 million, beating the $172 million average estimate of four analysts. Chrysler earlier had projected a full-year operating profit of as much as $200 million.
Free cash flow will be about $500 million, up from a negative $1 billion, Chrysler said.
“We have a habit here of under-promising and over-delivering,” Marchionne told analysts and reporters today during a conference call.
Chrysler is being cautious because it plans to start output of 10 products in the final quarter, he said.
“There may be upside from here,” Marchionne said.
Revenue rose 5.2 percent from the second quarter to $11 billion, Chrysler said. Modified earnings before interest, taxes, depreciation and amortization rose $82 million from the second quarter to $937 million, the company said.
Chrysler ended the third quarter with $8.26 billion in cash, up from $7.84 billion at the end of June. The increase was primarily due to the completion of a $400 million Mexican development bank loan drawn during the quarter, the company said.
“It’s going to be a good 2010,” Marchionne said. “I think it is crucial for us to be able to get this house ready for execution of the plan in 2011,” he said of a possible initial public offering.
Chrysler’s results were in line with expectations, Stuart Pearson, an analyst with Morgan Stanley in London, said in an e-mail today.
The fourth-quarter forecast “should be seen as a minimum,” he said. The results will be burdened by costs associated with the new and redesigned models Chrysler is introducing this quarter, he said.
Chrysler will provide a forecast for 2011 after the fourth quarter ends, Marchionne said.
As part of Chrysler’s five-year turnaround plan, the company said it would have operating profit of $1.6 billion to $2.4 billion on sales of $52.5 billion in 2011. Chrysler said it will generate $1 billion in free cash flow that year.
“We will be within that range, and we will be at the upper end of guidance,” Marchionne said.
He said the company is “encouraged” by its preliminary assessment of 2011 and expects to sell more than 2 million cars in the year.
Chrysler’s interest expense was $308 million for the third quarter and $899 million for the year through September. The automaker owes the U.S. and Canadian governments $7.4 billion after its government-backed bankruptcy restructuring last year.
Marchionne has said payments on those debts, which have effective interest rates as high as 20 percent, have prevented the company from posting a net profit. He said last week the company is looking at “a variety of capital sources.”
Chrysler may close on $3 billion in loans it sought from the U.S. Department of Energy within 40 days, Chief Financial Officer Richard Palmer said.
Those funds could “improve Chrysler’s ability to repay U.S. Treasury loans,” Morgan Stanley’s Pearson wrote in a note to investors Nov. 3.
The energy loan money would be restricted to specific projects that reduce fuel consumption, Palmer said today on the call. At the same time, cash is “fungible,” Marchionne added.
“In the scheme of things, they will all end up in the same pot and how we use that cash to repay who is really up to Chrysler,” Marchionne said.
Chrysler’s global vehicle sales in the quarter rose 17 percent from a year earlier to 401,067. About 37 percent of Chrysler’s U.S. sales during the period were to corporations, governments and rental-car companies, according to TrueCar.com, an automotive researcher based in Santa Monica, California.
Chrysler reduced its spending on sales incentives by 21 percent on average during the quarter compared with a year earlier, according to Edmunds.com, an automotive pricing website based in Santa Monica, California.
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