Fiat Posts Profit as Auto Unit Ends String of Losses

Milan Italy Jan. 30, 2006; Mathias Wildt writing for Bloomberg reported that Fiat SpA, Italy's biggest manufacturer, reported a fourth-quarter profit after Chief Executive Officer Sergio Marchionne cut jobs and boosted sales, ending 17 successive quarters of losses at the car unit.

Net income of 38 million euros ($46 million) compared with a loss of 550 million euros a year earlier, Turin, Italy-based Fiat said today in a statement. Sales rose 7.5 percent to 13.1 billion euros. The company posted its first full-year profit since 2000.

Marchionne laid off half of the Italian workforce, cutting costs by more than 500 million euros. He sped up the introduction of a new version of the Punto hatchback in September, reversing a decline in market share. The company in August said it plans to invest 10 billion euros in its auto unit and build 20 new car models over the next three years.

``The numbers are all pointing in the right direction,'' said Philippe Houchois, an analyst at J.P. Morgan in London who has an ``overweight'' rating on the shares. ``The auto business did as well as I'd expected and the non-auto businesses are doing better.''

The shares rose 0.6 percent to 8.20 euros. The stock has gained 11 percent so far this year compared with a 7 percent advance in the Bloomberg Europe Autos Index.

Fiat Auto had an operating profit of 21 million euros as sales rose 6.6 percent to 6.2 billion euros. Fiat's full-year net income was 1.3 billion euros, thanks to one-time gains including a 1.5 billion-euro payment from General Motors Corp. to end a failed alliance, the sale of a stake in Italenergia Bis SpA and the sale of new shares to repay a 3 billion-euro convertible loan.

One-Time Gains

Fiat's full-year results would have been about ``even'' without the one-time gains, Marchionne said on a conference call.

Fourth-quarter operating profit, or earnings before interest and tax, of 361 million euros beat the 335 million-euro median forecast of analysts surveyed by Bloomberg News. Net income was below the 124 million-euro median estimate of analysts.

``You need to put Fiat Auto's performance in parallel with those of Renault and Peugeot, both of whom issued profit warnings,'' said Patrice Solaro, an analyst at Kepler Equities in Paris, who has a ``buy'' rating on the stock.

The 107-year-old carmaker in September introduced the Grande Punto, a new version of Fiat's best-selling model, and has sold 115,000 units to date.

Because of the success of the new model, Fiat will bring forward the opening of a second production line of the Punto to May from September, Marchionne said. There are four weeks of back orders to fill, Marchionne said. Fiat also aims to sell 220,000 Panda small cars this year.

Fiat's Cash

Fiat said it ended the year with 7 billion euros in cash, compared with 6 billion euros at the end of 2004, and reduced its net industrial debt to 3.2 billion euros from 9.4 billion euros.

The company said it's aiming for positive cash flow and a profit of 700 million euros this year and 2 billion euros in 2007.

Fiat's Italian market share in 2005 declined between March and August and then rose in the last four months after the Punto's introduction, leaving the full-year share unchanged at 28 percent. The carmaker accounted for 6.5 percent of cars sold in Western Europe last year, down from 7.4 percent.

The company expects an average Italian market share of 30 percent this year, Marchionne said. He aims for a Western European market share of 7.2 percent this year, and world wide sales of 1.8 million units.

``There are four countries we will invest in to boost sales in Europe: Germany, France and Spain and the U.K., particularly for Alfa Romeo,'' Marchionne said.

Iveco Trucks

Fiat's Iveco SpA truck-making unit reported an operating profit of 138 million euros, compared with 148 million euros in the same period last year. Sales rose 9.8 percent to 2.8 billion euros. Fiat expects higher Iveco truck and bus sales this year.

Fiat's Amsterdam-based CNH Global NV, the world's second- largest farm equipment maker, behind Caterpillar Inc., on Jan. 25 reported fourth-quarter net income of $7 million compared with $26 million a year earlier.

The company said it plans to sell 7-year bonds in euros and use the proceeds to refinance debt. Fiat did not disclose the bond price or amount.

Barclays Plc, BNP Paribas SA, Citigroup Inc. and UniCredito Italiano SpA are managing the issue, according to a statement from Citigroup.

Moody's Investors Service raised its outlook on Fiat credit rating to stable from negative on its improved operating performance, indicating it is now more inclined to maintain the grade than lower it. The company's rating is Ba3, three levels below investment grade, at high-yield, or junk, status. The ratings at Standard & Poor's and Fitch Ratings are an equivalent BB- with a stable outlook.