Fiat Chrysler Automobiles NV :FCA-IT: Earnings Analysis: Q2, 2017 By the Numbers : August 3, 2017

Fiat Chrysler Automobiles NV reports financial results for the quarter ended June 30, 2017.

We analyze the earnings along side the following peers of Fiat Chrysler Automobiles NV – Renault SA, Daimler AG and CNH Industrial NV (RNO-IT, DAI-IT and CNHI-IT) that have also reported for this period.

Highlights

  • Summary numbers: Revenues of EUR 27925 million, Net Earnings of EUR 1145 million.
  • Gross margins widened from 12.12% to 15.85% compared to the same period last year, operating (EBITDA) margins now 14.63% from 9.31%.
  • Year-on-year change in operating cash flow of -24.26% is about the same as the change in earnings, likely no significant movement in accruals or reserves.
  • Earnings growth from operating margin improvements as well as one-time items.

The table below shows the preliminary results and recent trends for key metrics such as revenues and net income growth:

2017-06-30 2017-03-31 2016-12-31 2016-09-30 2016-06-30
Relevant Numbers (Quarterly)
Revenues (mil) 27925 27719 29719 26836 27893
Revenue Growth (%YOY) 0.11 4.32 8.06 -2.62 -4.57
Earnings (mil) 1145 637 412 608 311
Earnings Growth (%YOY) 268.17 34.96 4677.78 298.69 -2.81
Net Margin (%) 4.1 2.3 1.39 2.27 1.11
EPS 0.74 0.41 0.27 0.39 0.2
Return on Equity (%) 5.71 3.23 2.24 3.56 1.89
Return on Assets (%) 4.58 2.47 1.61 2.4 1.24

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Market Share Versus Profits

Revenues History
Earnings History

FCA-IT‘s change in revenue this period compared to the same period last year of 0.11% is almost the same as its change in earnings, and is about average among the announced results thus far in its peer group, suggesting that FCA-IT is holding onto its market share. Also, for comparison purposes, revenues changed by 0.74% and earnings by 79.75% compared to the immediate last period.

Revenues Growth Versus Earnings Growth

Quadrant label definitions. Hover to know more

Leader, Earnings Focus, Laggard, Revenues Focus

Earnings Growth Analysis

The company’s earnings growth was influenced by year-on-year improvement in gross margins from 12.12% to 15.85% as well as better cost controls. As a result, operating margins (EBITDA margins) rose from 9.31% to 14.63% compared to the same period last year. For comparison, gross margins were 14.90% and EBITDA margins were 10.99% in the last reporting period.

Gross Margin Versus EBITDA Margin

Quadrant label definitions. Hover to know more

Differentiated; Low Cost, Commodity; Low Cost, Commodity; High Cost, Differentiated; High Cost

Gross Margin Trend

Companies sometimes sacrifice improvements in revenues and margins in order to extend friendlier terms to customers and vendors. Capital Cube probes for such activity by comparing the changes in gross margins with any changes in working capital. If the gross margins improved without a worsening of working capital, it is possible that the company’s performance is a result of truly delivering in the marketplace and not simply an accounting prop-up using the balance sheet.

Gross Margin History
Working Capital Days History

FCA-IT‘s improvement in gross margin has been accompanied by an improvement in its balance sheet as well. This suggests that gross margin improvements are likely from operating decisions and not accounting gimmicks. Its working capital days have declined to -34.15 days from 28.99 days for the same period last year.

Gross Margin Versus Working Capital Days

Quadrant label definitions. Hover to know more

Customer Financed, Cash Starved, Supplier Financed, Cash Rich

Cash Versus Earnings – Sustainable Performance?

It is important to examine a company�s cash versus earnings numbers to gauge whether its performance is sustainable.

FCA-IT‘s change in operating cash flow of -24.26% compared to the same period last year is about the same as its change in earnings this period. Additionally, this change in operating cash flow is about average among its peer group. This suggests that the company did not use accruals or reserves to manage earnings this period, and that, all else being equal, the earnings number is sustainable.

Operating Cash Flow Growth Versus Earnings Growth

Quadrant label definitions. Hover to know more

Cash Flow based Earnings, Likely Non-cash Earnings, Low Cash Flow Base, Likely Undeclared Earnings

Margins

The company’s earnings growth has also been influenced by the following factors: (1) Improvements in operating (EBIT) margins from 3.76% to 9.21% and (2) one-time items. The company’s pretax margins are now 7.88% compared to 1.76% for the same period last year.

EBIT Margin Versus PreTax Margin

Quadrant label definitions. Hover to know more

Operation driven Earnings, One-time Favorables, Low Earnings Base, One-time Unfavorables
EBIT Margin History
PreTax Margin History

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Company Profile

Fiat Chrysler Automobiles NV engages in the design, engineering, manufacturing, distribution and sale of automobiles and light commercial vehicles, engines, transmission systems, automotive-related components, metallurgical products and production systems. It operates through the following segments: North American Free Trade Agreement (NAFTA), Latin America (LATAM), Asia-Pacific (APAC), Europe, the Middle East, and Africa (EMEA), Maserati, and Components. The NAFTA segment engages in the designing, engineering, development, manufacturing, distributing and selling of automobiles under the Chrysler, Jeep, Dodge, Ram and Fiat brand names, vehicles with the SRT performance designation and from sales of the related parts and accessories in the United States, Canada and Mexico. The LATAM segment sells passenger cars and light commercial vehicles and related spare parts under the brand names, Fiat and Fiat in South and Central America and it also provides financial services in Brazil and Argentina. The APAC segment offers cars, engines and transmissions and related spare parts under the Chrysler group and Fiat brands in China, Japan, Australia and India. The EMEA segment designs, develops and sells passenger cars and light commercial vehicles under the Fiat, Alfa Romeo, Lancia, Chrysler, Abarth and Fiat Professional and the sale of the related spare parts in Europe, Middle East and Africa. The Maserati segment manufactures, designs, engineers distribution and sale of luxury vehicles under the Maserati brand. The Components segments includes production and sale of lighting components, body control units, suspensions, shock absorbers, electronic systems, and exhaust systems, and others. The company was founded on April 1, 2014 and is headquartered in London, the United Kingdom.

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