Why Fiat Chrysler Automobiles' Profit Soared in 2016

By John Rosevear Markets Fool.com

Italian-American automaker Fiat Chrysler Automobiles NV (NYSE: FCAU) said on Jan. 26 that it earned a net profit of 1.8 billion euros ($1.9 billion) in 2016, up from just 93 million euros ($100 million) in 2015, on increasing profit margins in North America and Europe driven by strong SUV and truck sales.

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In the fourth quarter of 2016, FCA earned 1.5 billion euros ($1.7 billion) before interest and taxes, up 1% from a year ago. Its fourth-quarter revenue also rose 1%, to 29.7 billion euros ($31.9 billion). Net income of 409 million euros ($438 million) was roughly double its year-ago result.

The small Jeep Renegade enjoyed strong global sales in 2016. Image source: Fiat Chrysler Automobiles NV.

The raw numbers

All financial results are in billions of euros except as noted. As of Jan. 26, 1 euro = about $1.06.

Metric Q4 2016 Q4 2015 Change 2016 2015 Change
Revenue 29.7 29.4 1% 111 110.6 0%
Shipments (millions of vehicles) 1.23 1.25 (4)% 4.72 4.73 0%
Adjusted EBIT 1.55 1.53 1% 6.06 4.79 26%
Adjusted EBIT margin 5.2% 5.2% flat 5.5% 4.3% 1.2 ppts
Net profit (millions of euros) 409 196 109% 1,814 93

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FCA's expression of "adjusted EBIT" excludes one-time items from the standard calculations.

Metric Dec. 31, 2016 Dec. 31, 2015 Change
Net industrial debt (see below) 4.59 5.05 0.46 lower
Available liquidity (cash plus credit lines) 23.8 24.5 0.7 lower

FCA's calculation of "net industrial debt" is total debt minus cash on hand and debt related to the company's financial-services arm. Total debt was 24.05 billion euros as of Dec. 31, 2016.

How FCA's business units fared in 2016

All income numbers are presented on an "adjusted EBIT" basis.

FCA's NAFTA unit earned 5.1 billion euros in 2016, up 15% from its year-ago result. Its margin of 7.4% was an improvement of a full 100 basis points (1 percentage point) from a year ago. Shipments fell 5%, largely as a result of the decision to phase out the Chrysler 200 and Dodge Dart sedans -- a decision that contributed to an improvement in vehicle mix that helped boost profitability.

For the full year, FCA's U.S. sales were roughly flat, as strong Jeep and truck sales were offset by the loss of the 200 and Dart.

U.S. sales of the highly profitable Ram pickup line rose 9% in 2016. Image source: Fiat Chrysler Automobiles NV.

FCA's LATAM (Latin America) unit earned 5 million euros in 2016, up from an 87-million-euro loss in 2015. Revenue fell 4%, to 6.2 billion euros, on an 18% decline in shipments (to about 456,000 units). The roughly break-even result was a good one given the region's economic challenges and persistent inflation. It was driven by improved vehicle mix and cost reductions, FCA said.

FCA's APAC (Asia Pacific, including China) region earned 105 million euros in 2016, roughly double its 2015 profit. Its margin of 2.9% was up 1.1 points from a year ago. The profit gain came despite a 39% drop in vehicles shipped (to about 91,000) and a 25% drop in revenue (to 3.7 billion euros). FCA said that while the total number of vehicles it imported to China decreased due to ramped-up local production of Jeeps, the improved "mix" of those imports helped boost overall profits.

FCA's EMEA (Europe) unit earned 540 million euros in 2016, up from 213 million euros in 2015. Profit margin improved to 2.5% from 1% a year ago. The gain came on a 14% increase in shipments (to 1.3 million vehicles) and a 7% increase in revenue, to 21.9 billion euros. FCA credited the boost in sales to several all-new models, including the Fiat Tipo family, the Alfa Romeo Giulia sedan, and the small Italian-made Jeep Renegade.

The new Maserati Levante SUV drove strong sales gains for the Italian luxury brand in 2016. Image source: Fiat Chrysler Automobiles NV.

FCA's Maserati brand reports its results globally, outside the company's regional structure. The Italian luxury-car brand earned 339 million euros in 2016, more than triple its 2015 result, on a 30% jump in shipments (to 42,100) and a 44% gain in revenue (to 3.5 billion euros). The sales jump, driven primarily by the brand's new Levante SUV, was reflected in all three of Maserati's principal regions: Sales rose 91% in China, 37% in Europe, and 14% in North America.

FCA's components unit includes the auto-industry suppliers Magneti Marelli, Comau, and Teksid. The group earned 445 million euros in 2016, up 13%, with a 4.6% margin.

Debt and liquidity

As of Dec. 31, FCA had "net industrial debt" of 4.6 billion euros, down from 6.5 billion euros as of Sept. 30, on good fourth-quarter operating cash flow. Its total debt of 24.05 billion euros was down from 25.3 billion euros as of Sept. 30, and from 27.8 billion euros as of the end of 2015.

On the other side of the ledger, FCA had 17.3 billion euros in cash and another 6.5 billion euros in available credit lines, for total "available liquidity" of 23.8 billion euros. That was up about 600 million euros from a year ago.

FCA's guidance for 2017

FCA said that 2017 will be a "transition year," with modest revenue growth and a focus on generating cash. It expects revenue, adjusted EBIT, and net profit excluding special items to all be significantly higher for the full year versus 2016, and it expects net industrial debt to fall below 2.5 billion euros from 4.6 billion euros as of the end of 2016.

Image source: Fiat Chrysler Automobiles NV.

Those gains, the company said, will be driven by higher truck and SUV production capacity (and thus sales volumes, hopefully) in North America, the continued expansion of the Jeep, Alfa Romeo, and Maserati brands, and lower interest charges as it pays down debt. The company hopes to achieve investment-grade credit metrics by the end of 2017, and to reduce its net industrial debt to zero sometime in 2018.

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John Rosevear has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.