Fiat Chrysler (FCAU, Financial) (MIL:FCA, Financial), the $20.6 billion Italian-controlled, Netherlands-incorporated carmaker with headquarters in London, delivered its fiscal 2016 results in January. Fiat Chrysler delivered 0.38% sales growth to 111 billion euros and recorded an impressive 1.8 billion euros in profits compared to 83 million euros in 2015.
As observed, Fiat Chrysler recorded 1.8% lower operational costs and 13% lower restructuring costs and net financial expenses. The car company also increased its investment results by 130% to 329 million euros, which overall helped Fiat Chrysler gain its 1.6% profit margin in 2016 compared to just 0.3% in 2015.
"Fiat Chrysler closed 2016 with another record financial performance while continuing to be recognized for its sustainable operating model.
"We exceeded our full-year guidance in all key metrics, made all the more significant by the fact that our targets were revised upward twice during the year. In addition, all of our segments were profitable and showed improvement over the prior year." – John Elkann, chairman, and Sergio Marchionne, CEO
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*Full letter to shareholders from pages 3 to 6 of this link.
Fiat Chrysler shares reacted with 0.18% gain at market close post-earnings announcement.
Outlook
(Press Release)
Taking the midpoint of its fiscal 2017 sales guidance, Fiat Chrysler sees its overall sales growing 5.8% in 2017. This compares to the company’s three-year sales growth average of 8.5%.
Valuations
Fiat Chrysler currently trades at a good discount compared to its peers. According to GuruFocus data, the car company had trailing price-earnings (P/E) ratio of 8.7 times vs. industry median of 18 times, price-book (P/B) value of 1.02 times vs. industry median 1.7 times and price-sales (P/S) figure of just 0.15 times vs. industry median of 0.8 times.
Fiat Chrysler did not have a trailing dividend yield.
Fiat Chrysler shares that trade in Milan Stock Exchange would have forward 2017 average sales and earnings-per-share multiples of 0.16 times and 5.29 times using Reuters data.
Total returns
Fiat Chrysler shares that trade in the New York Stock Exchange outperformed the broader Standard & Poor's 500 index in both the short and long term. In the past year, Fiat Chrysler outperformed the broader market index by 2.5 times while having delivered a total return of 12.8% vs. S&P 500’s 10.4%.
Fiat Chrysler Automobiles NV
Fiat Chrysler was originally incorporated as a public limited liability company under the laws of the Netherlands in 2014.
Fiat, the predecessor to Fiat Chrysler, was founded as Fabbrica Italiana Automobili Torino, on July 11, 1899 – nearly 117 years ago –Â in Turin, Italy, as an automobile manufacturer.
Chrysler began part of Fiat’s business in 2009 with initial 20% ownership by the latter following several business arrangements. Fiat grew its stake in Chrysler, now known as FCA US LLC, over the ensuing years and purchased the remaining 41.5% in 2014. As a result, FCA US became an indirect 100%-owned subsidiary of Fiat Chrysler.
Fiat Chrysler is an international automotive group engaged in designing, engineering, manufacturing, distributing and selling vehicles, components and production systems worldwide.
Fiat Chrysler designs, engineers, manufactures, distributes and sells vehicles for the mass market under the Abarth, Alfa Romeo, Chrysler, Dodge, Fiat, Fiat Professional, Jeep, Lancia and Ram brands and the SRT performance vehicle designation.
Fiat Chrysler has operations in more than 40 countries and sells its vehicles directly or through distributors and dealers in more than 140 countries.
In 2016, Fiat Chrysler delivered 55% or 2.6 vehicle million units –Â 5.1% lower to number of units shipped in 2015 –Â to the U.S., Canada, Mexico and Caribbean islands or what the company identified as part of its NAFTA division.
Meanwhile, 28% or 1.3 million vehicle units –Â 14.4% higher than the previous year –Â were shipped to Europe, the Middle East and Africa (EMEA).
Vehicle units ship to South and Central America, and Asia and Pacific countries declined by 17.5% and 38.9%. Both countries rounded to about 12% of total vehicle shipments.
According to Fiat Chrysler, its vehicle shipments are generally aligned with current period production which is driven by its plans to meet consumer demand.
Fiat Chrysler has six reportable segments: four regional mass-market vehicle segments (NAFTA, LATAM, APAC and EMEA), Maserati, FCA global luxury brand segment and a global Components segment.
NAFTA
Fiat Chrysler’s operates to support distribution and sale of mass-market vehicles in the U.S., Canada, Mexico and Caribbean islands primarily under the Abarth, Alfa Romeo, Chrysler, Dodge, Fiat, Jeep and Ram brands.
NAFTA sales fell by 1.3% in 2016 down to 69.1 billion euros or 61% of total Fiat Chrysler sales –Â excluding other activities, unallocated items and eliminations.
Further, NAFTA sales delivered an adjusted EBIT margin of 7.4% compared to 6.4% in 2015.
LATAM
LATAM operates to support the distribution and sale of mass-market vehicles in South and Central America primarily under the Dodge, Fiat, Jeep and Ram brands with the largest focus of its business in Brazil and Argentina.
LATAM sales fell by 3.6% in 2016 down to 6.2 billion euros or 5% of total sales. The division also delivered an adjusted EBIT of just 0.1% compared to losses of 87 million euros in 2015.
APAC
APAC operates to support the distribution and sale of mass-market vehicles in the Asia Pacific region (mostly in China, Japan, Australia, South Korea and India) carried out in the region through both subsidiaries and joint ventures, primarily under the Abarth, Alfa Romeo, Chrysler, Dodge, Fiat, Fiat Professional and Jeep brands.
APAC sales fell the most in all of Fiat Chrysler’s division in 2016. The division’s sales fell by 25% to 3.7 billion euros or 3% of total sales. According to Fiat Chrysler, major sales reduction was primarily as a result of lower imported volumes in China due to transition to local Jeep production associated with a joint venture in China.
The segment delivered an adjusted EBIT margin of 2.9% vs. 1.1% in 2015.
EMEA
EMEA operates to support the distribution and sale of mass-market vehicles in Europe (which includes the 28 members of the European Union and the members of the European Free Trade Association), the Middle East and Africa primarily under the Abarth, Alfa Romeo, Dodge, Fiat, Fiat Professional, Jeep, Lancia and Ram brands.
EMEA sales grew 7.4% to 21.9 billion euros or 19% of total sales. The segment delivered an adjusted EBIT margin of 2.5% vs. 1% in 2015.
Fiat Chrysler credited sales growth mostly from the newly introduced Fiat Tipo family, all”new Alfa Romeo Giulia and Jeep Renegade.
Maserati, Fiat Chrysler’s global luxury brand segment
The division operates to design, engineering, development, manufacturing, worldwide distribution and sale of luxury vehicles under the Maserati brand.
Maserati experienced an impressive 44.3% sales growth to 3.5 billion euros or 3% of total sales and delivered an adjusted EBIT margin of 9.7% vs. 4.4% in 2015.
Components segment
Components segment is involved in the production and sale of lighting components, body control units, suspensions, shock absorbers, electronic systems and exhaust systems and activities in powertrain (engine and transmissions) components, engine control units, plastic molding components and in the after-market carried out under the Magneti Marelli brand name.
The division is also responsible in cast iron components for engines, gearboxes, transmissions and suspension systems, and aluminum cylinder heads and engine blocks under the Teksid brand name.
Lastly, the segment operates to design and production of industrial automation systems and related products for the automotive industry under the Comau brand name.
Components sales fell 1.1% to 9.7 billion euros or 8% of total sales. The division also delivered an adjusted EBIT margin of 4.6% vs. 4% in 2015.
Sales and profits
(20-F)
Fiat Chrysler had three-year sales and profit growth and margin averages of 8.5%, 25.9% and 0.84%.
Cash, debt and book value
As of December, Fiat Chrysler had 17.3 billion in cash and cash equivalents, and 24 billion euros in debt with a debt-equity ratio of 1.2 times vs. 1.6 times in 2015; 25.5% of Fiat Chrysler’s 104.3 billion assets were goodwill and intangible assets. The car company also had a book value of 19.35 billion euros compared to 17 billion euros in 2015.
Cash flow
(20-F)
In 2016, Fiat Chrysler’s cash flow from operations grew 8.65% to 10.6 billion euros. As observed, much of the growth came from improved profits.
Capital expenditures were 8.82 billion euros leaving Fiat Chrysler with 1.8 billion euros in free cash flow compared to 932 million euros in 2015.
Fiat Chrysler has yet to provide any dividends in recent years.
“Insofar as the profits have not been distributed or allocated to the reserves, they may, by resolution of the general meeting of shareholders, be distributed as dividends on the FCA common shares only. The general meeting of shareholders may resolve, on the proposal of the FCA board of directors, to declare and distribute dividends in U.S. dollars.”
2016 20-F, Fiat Chrysler
(20-F)
Fiat Chrysler also has been reducing more of its debts than increasing it in recent years. In 2015, the car company also received 866 million euros from its 10% stake in Ferrari N.V. (RACE, Financial).
Conclusion
Fiat Chrysler demonstrated steady business growth in 2016. The car company delivered better profitability in the year secondary to lower operational costs. In addition, Fiat Chrysler sees fiscal 2017 a much better year with improving sales and possibly more than 20% adjusted net profit growth for this year.
Fiat Chrysler was also able to debt and grow its book value (2).
Further, Fiat Chrysler also seemed to prioritize reducing its debt and was impressively able to grow its free cash flow in recent years.
(Fiat Chrysler NYSE shares and iShares S&P 500 Index in One-Year, Financial Times)
Early investors were certainly favorably rewarded.
In February, analysts in both Natixis Bleichroeder and Barclays upgraded their outlook on Fiat Chrysler rating it with neutral and equal weight despite the recent run-up.
One thing to be cautious about, despite these favorable achievements, is the recent updates that the U.S. Securities and Exchange Commission and the states’ attorneys general also are investigating the possible violation of pollution laws by Fiat Chrysler.
According to Bloomberg, the two entities have begun the investigation following the U.S. Environmental Protection Agency (EPA) allegations in January.
Fiat Chrysler CEO Sergio Marchionne disputed the EPA’s allegations, calling them “unadulterated hogwash.”
Nonetheless, Fiat Chrysler is about fairly valued right now at $10.81 a share and is a hold.
Notes
- 20-F:
Adjusted Earnings Before Interest and Taxes (“Adjusted EBIT”):
Adjusted EBIT excludes certain adjustments from Net profit from continuing operations including gains/(losses) on the disposal of investments, restructuring, impairments, asset write-offs and unusual income/(expenses) that are considered rare or discrete events that are infrequent in nature, and also excludes net financial expenses and tax expense/(benefit).
2. Me:
(20-F Net debt, Fiat Chrysler)
As it turned out, Fiat Chrysler reported a mere improvement in terms of net debt levels.
Disclosure: I do not have shares in any of the companied mentioned.
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