MILAN/DETROIT (Reuters) - Italian carmaker Fiat FIA.MI cut its 2013 profit and sales forecasts on Wednesday as a third-quarter slump in Latin America offset a strong performance at Chrysler, the No.3 U.S. automaker it controls.
Fiat slashed the bottom end of its trading profit forecast to 3.5 billion euros ($4.8 billion) from 4.0 billion euros, below analysts' lowest estimate of 3.65 billion.
Analysts were expecting a poor performance in Brazil, which usually accounts for about a quarter of Fiat's trading profit, because of the strong euro and the end of car sales incentives, but were surprised by the extent of the cut in guidance.
"Certainly a disappointment and a sign of how tough things are at the mass end of the market," Barclays analysts said.
Fiat shares dropped as much as 5 percent on the news.
Latin America and Chrysler have become increasingly important to Fiat as its business in Europe struggles with a six-year slump in auto sales in the region. Fiat has been hit harder than many rivals in Europe due to its focus on the mid-market, which has lagged both budget and luxury segments.
But Fiat said on Wednesday trading profit - earnings before interest, tax and one-off items - in Latin America fell to 165 million euros in third quarter from 341 million a year ago, due to lower sales, higher input costs and a weaker Brazilian real.
The group also said its net debt rose to 8.3 billion euros, way above analysts' average forecast of 7.6 billion.
The news was better elsewhere.
Fiat's net loss in Europe - where mass-market carmakers are struggling with the lowest sales in 20 years - narrowed to 165 million euros from 238 million a year earlier.
Chrysler, meantime, posted a 22 percent rise in net profit to $464 million.
The earnings of both Fiat and Chrysler are being watched by analysts as an indication of the value Chrysler could fetch should its minority shareholder press ahead with an initial public offering (IPO) of some of its shares.
Fiat wants to buy the 41.5 percent stake in Chrysler owned by a union-affiliated healthcare trust, but the two have so far failed to reach an agreement on price.
Fiat chief executive Sergio Marchionne said on Wednesday there were currently no talks being held with the trust and he was ready for an IPO to take place this year.
The Barclays analysts were pessimistic of Fiat's chances of buying out Chrysler on the cheap, saying that if the trust's shares were floated, they were likely to attract an activist investor that could drive up the price Fiat would have to pay.
Fiat's third-quarter trading profit dropped 9 percent to 816 million euros, missing analysts' mean forecast of 915 million.
It cut its 2013 revenue guidance to about 88 billion euros, at the bottom of its previous range, and now sees trading profit at between 3.5 billion and 3.8 billion euros - placing the top end of its forecast in line with last year's figure.
Chrysler, which Fiat has controlled since 2009, said its net revenue rose 13.5 percent to $17.6 billion in the third quarter, as strong sales of its pickup trucks and Jeep Grand Cherokee helped offset a delay in sales for the smaller Jeep Cherokee.
Some analysts had been predicting that the Jeep Cherokee launch delay would hurt third-quarter results. The Cherokee began shipping to dealers last week.
Chrysler's U.S. market share fell to 11.2 percent in the quarter from 11.3 percent a year ago. But Morningstar analyst Richard Hilgert was relaxed "because they didn't have the Cherokee and they had the Liberty adding to their sales last year."
The Jeep Liberty is the vehicle Cherokee replaces in the Chrysler lineup. Hilgert said fourth-quarter vehicle sales and earnings were likely to be boosted from a year earlier because the decline in Liberty sales began in late 2012.
Chrysler confirmed its full-year sales forecast of $72 billion to $75 billion.
At 1600 GMT, Fiat shares were down 2.3 percent at 5.7 euros.
($1 = 0.7262 euros)
(Reporting by Bernie Woodall and Jennifer Clark; Editing by Erica Billingham and Mark Potter)