Fiat Chrysler's Profit Jumps

Fiat Chrysler Automobiles NV reported a two-thirds jump in second-quarter profit on Thursday as the Italian-American car maker showed strong improvement in its North America margins and consolidated a timid turnaround in its European business. Net profit rose 69% to EUR333 million ($366 million) in the second quarter compared with EUR197 million in the same period last year. Revenue advanced 25% to EUR29.23 billion. Fiat Chrysler's operating margin in North American, which has long lagged that of its two Detroit rivals, more than doubled from the second quarter to 7.7%. Boosting profitability has been a key target for Chief Executive Sergio Marchionne, who has said that he plans to get there by offering lower discounts and selling more high-margin trucks and SUVs. While the second-quarter numbers show Fiat Chrysler is making progress in improving profitability, the company must still close a large gap to reach Ford Motor Co. and General Motors Co. Ford this week confirmed a forecast for full-year operating profit of between $8.5 billion and $9.5 billion with a margin of about 9%. Fiat is targeting full-year operating profit of more than EUR4.5 billion, a slight improvement from a previous forecast, and an operating margin of between 5.5% and 6%. Fiat Chrysler's margins will be under pressure for the rest of the year as the company's U.S. unit appears to have recently taken over from GM the role of car maker most adversely affected by vehicle recalls. Earlier this week, U.S. regulators whacked Fiat Chrysler with what could amount to a record $105 million fine for the company's poor management of recalls covering millions of vehicles. In addition to the fine and the requirement to buy back as many as 200,000 previously recalled vehicles that haven't already been fixed, Fiat Chrysler will be forced to have an independent monitor audit the company's recall process for up to four years. Fiat Chrysler just last week had to recall 1.4 million Jeeps, Chryslers, Rams and Dodges for a software update after a controlled hack showed that it is possible to take control of the vehicles remotely. In Europe, things have continued to improve for Fiat Chrysler, which had racked up more than seven years of quarterly operating losses in the region before squeezing out a small profit in the fourth quarter of last year. In the first three months of the year, and in this most recent quarter, Fiat Chrysler again made a small operating profit, helped in part by the arrival of new Fiat and Jeep brand crossover SUVs. While Latin America accounts for only about 6% of Fiat Chrysler's sales, the downturn in the region has proven a challenge as the company had been banking on strong growth, especially in Brazil where it is the market leader by vehicle sales. Fiat Chrysler posted an operating loss in the region for a second straight quarter though it said that without a massive Brazilian factory's startup costs and the marketing costs of launching the Jeep Renegade it would have broken even. Net industrial debt at the end of June was EUR8.02 billion compared with EUR8.61 billion at the end of March. Fiat Chrysler said that it would ship about 4.8 million vehicles this year. That is a slight decline from a previous forecast of between 4.8 million and 5 million. The company nudged up its forecast for full-year revenue by EUR2 billion to EUR110 billion. Operating profit rose 40% in the quarter to EUR1.35 billion, well above the EUR1 billion average forecast published by FactSet. Revenue also beat the forecasts and debt came in below expectations.