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Wednesday July 22, 06:30 PM
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Fiat back to profit in Q2 but debt weighs
By Jo Winterbottom
MILAN (Reuters) - Fiat SpA beat expectations for second-quarter trading profit on Wednesday, helped by tax breaks for drivers trading in older, polluting cars, but its efforts to cut debt disappointed and shares slipped.
Fiat, which owns 20 percent of U.S. car maker Chrysler and tried to buy the European operations of General Motors this year, said trading profit for the quarter was 310 million euros ($440 million) after a loss of 48 million in the first quarter.
It cut net industrial debt to 5.7 billion euros from 6.6 billion in the period, mainly by selling down stocks.
Fiat, Europe's sixth-biggest car maker, also confirmed its targets for a 2009 trading profit of more than 1 billion euros and end-year net debt of less than 5 billion euros.
Fiat is the first of the major car makers to report results for the second quarter. Many analysts are expecting to see tentative signs of stabilising demand in the industry, whose sales have been savaged by the downturn.
Fiat also has to tackle its debt, which jumped in the previous two quarters as it struggled to shift stocks.
"The net debt evolution, while positive, does not mark as positive an inflection as many hoped," Morgan Stanley analysts wrote in a note. They said they had expected working capital to helped by 1 billion euros instead of the actual 800 million euros.
Shares were down 2.7 percent by 1218 GMT against a 0.86 percent drop in the DJ Stoxx index of auto shares.
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Fiat has used temporary production shutdowns and focused on cutting inventory to cope with slumping demand and improve its cash situation.
Revenues from its Fiat, Lancia and Alfa Romeo brands fell 11 percent in the quarter to 6.9 billion euros after an 18 percent fall in the first quarter, a sign the slump may be slowing.
Fiat said it expected an improvement in the second half across its businesses, even if trucks and tractors still faced tough conditions.
But the Morgan Stanley analysts said the unit sales missed their expectations.
An analyst in Milan said sales to dealerships might be a factor.
"I thought there would be more ... sales to dealers. So in the end there was a smaller impact on the improvement in working capital," said the analyst, who spoke on condition of anonymity.
Fiat, like rivals PSA Peugeot Citroen and Volkswagen, has been able to push sales thanks to government incentives in many countries.
Other European car companies report later this month.
On Tuesday, world number two truckmaker Volvo AB turned in a hefty operating loss for the period.
Scania AB, another Swedish truckmaker, reports second-quarter results on Thursday.
Fiat's own truck making unit, Iveco, squeaked a trading profit in the quarter of 6 million euros, down from 470 million a year ago, as sales slumped nearly 46 percent.
Fiat's CNH Global NV agricultural equipment maker turned in a second-quarter net loss per share of $0.28 earlier on Wednesday. It said it saw a net loss for the year.
Fiat said for the rest of the year, "the truck market and the construction equipment business will continue to suffer depressed demand", only seeing signs of recovery in the fourth quarter. But overall, the rest of the year should show an improvement.
(Additional reporting by Claudia Cristoferi and Stefano Rebaudo in Milan, Helen Massy-Beresford in Paris)
