Fiat Chrysler lifts 2016 guidance, but doubts linger

Wed Jul 27, 2016 11:13am EDT
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By Agnieszka Flak and Bernie Woodall

MILAN/DETROIT (Reuters) - Fiat Chrysler Automobiles (FCA) nudged up its full-year adjusted earnings guidance on Wednesday, but its shares came off earlier highs after recall costs hit second-quarter profit and concerns remained about its exposure to a peaking U.S. market.

The world's seventh-largest carmaker said adjusted operating profit for April to June rose 16 percent to 1.63 billion euros ($1.8 billion), in line with an analyst consensus of 1.64 billion euros in a Reuters poll.

But earnings fell 14 percent when including charges related to recall costs and production adjustments in North America.

FCA (FCHA.MI: Quote) is investing billions of dollars - despite high debts - in a bid to capture a bigger share of the lucrative SUV and pickup truck markets in the United States. This includes $1.5 billion in a plant in Michigan and another $1 billion to retool assembly plants in Ohio and Illinois.

FCA's profit margins in North America rose to 7.9 percent in the quarter from 7.7 percent last year but the improvement was less marked than in previous quarters and failed to impress when compared with 12.1 percent for GM (GM.N: Quote).

"Free cash flow was a touch better than anticipated, yet FCA's net debt remains elevated," said George Galliers, an analyst at Evercore ISI.

"Rightly, investors may be concerned given the fact that North American earnings growth would appear to be plateauing."

North America accounted for nearly 85 percent of FCA's quarterly profit, reflecting robust demand for its Jeep SUVs and pickup trucks. FCA broke even in Latin America and posted strong earnings growth in Europe.   Continued...

A new Fiat Chrysler Automobiles sign is unveiled at Chrysler Group World Headquarters in Auburn Hills, Michigan May 6, 2014.   REUTERS/Rebecca Cook