April 26, 2018 / 11:32 AM / in 6 months

Fiat Chrysler cuts debt by more than expected

MILAN (Reuters) - Fiat Chrysler Automobiles (FCA) (FCHA.MI) reduced its debts by more than expected in the first quarter, putting the carmaker well on course to become cash positive later this year.

FILE PHOTO: Sergio Marchionne, CEO, Fiat Chrysler Automobiles, speaks with journalists at the North American International Auto Show in Detroit, Michigan, U.S., January 15, 2018. REUTERS/Rebecca Cook/File Photo

Chief Executive Sergio Marchionne expects to cancel all debt during 2018 - possibly by the end of June - and generate around 4 billion euros ($5 billion) in net cash by the end of the year.

The forecast does not include any one-off measures, nor the impact of the planned spin-off of parts maker Magneti Marelli, which Marchionne hopes to execute by early 2019.

The world’s seventh-largest carmaker said on Thursday net debt had fallen to 1.3 billion euros ($1.6 billion) by the end of March, well below a consensus forecast of 2.6 billion euros in a Thomson Reuters poll of analysts.

FCA said capital spending fell 900 million euros in the quarter due to “program timing”, which some analysts said implied higher investments for the rest of the year.

But Marchionne said the next investment cycle, which FCA is preparing as part of a new five-year business plan that will be unveiled on June 1, will take time to materialize.

Overall expenditure for this year is forecast at around 8 billion euros, down from 8.7 billion last year.

The Italian-American group (FCAU.N) said first-quarter operating profit rose 5 percent to 1.61 billion euros, below a consensus forecast of 1.74 billion, as a weaker performance from its North American profit center weighed.

Shipments there were higher due to the new Jeep Wrangler and Compass models. But currency moves hit revenues and earnings, and costs related to new product launches added to the pressure.

FCA had encountered problems ramping up production of the new RAM 1500 pick-up truck at its U.S. Sterling Heights plant.

“The good thing is that this is not a permanent lack of efficiencies, we understand the issues,” Marchionne said during a call with analysts, adding measures put in place to catch up gave FCA the confidence to confirm its financial targets for the full year.

LUCRATIVE TRUCKS & SUVs

FCA has been retooling some U.S. factories to boost output of lucrative sport-utility vehicles and trucks while ending production of some unprofitable sedans to meet growing demand for larger and higher-seated vehicles.

Both FCA and bigger U.S. rival GM (GM.N) are bringing out all-new pickup trucks in an increasingly-competitive and highly-profitable segment. The cost of changing over to new pickup trucks also impacted GM’s quarterly earnings.

However, FCA’s shift to sell more trucks and SUVs boosted margins yet again in North America to 7.4 percent from 7.3 percent in the same quarter a year ago, although they were down from the 8 percent recorded in the preceding three months.

Marchionne, preparing to hand over to an internal successor next year, is close to his goal of ending a margin gap with its U.S. rivals GM and Ford (F.N).

The 65-year-old has said becoming debt free and being able to compete on a par with U.S. peers would mean FCA no longer needed a partner to survive and could well succeed on its own.

The CEO has previously said tying up with another carmaker would help to meet the huge costs in an industry investing in electric vehicles and automated driving.

Asked about the possibility of remaining at the helm when his mandate expires in April next year, Marchionne said the chances of that were “between zero to none”.

He deferred any questions about product plans to the June presentation, other than saying that Europe presented the largest challenge for FCA given its complex regulatory framework that in turn would be the single biggest driver in repositioning the group going forward.

FCA shares fell immediately after the results, but recovered to trade up 1.7 percent at 19.46 euros by 1417 GMT, outperforming a 0.7 percent rise in Europe's blue-chip stock index .FTEU3.

($1 = 0.8214 euros)

Additional reporting by Nick Carey in Detroit; Editing by Mark Potter and Alexandra Hudson

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