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Why Fiat Chrysler’s Profit Margins Could Expand in 2Q17

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Dec. 4 2020, Updated 10:43 a.m. ET

FCAU’s 2Q17 earnings

Previously in this series, we saw how analysts are estimating Fiat Chrysler Automobiles’ (FCAU) 2Q17 revenues to be higher on a year-over-year basis. Despite poor 2Q17 US sales performance, higher sales figures in the European market could benefit FCAU. 

Now, let’s take a look at the existing trend in the company’s margins, followed by a look at Fiat Chrysler’s 2Q17 margin estimates.

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Fiat Chrysler’s 1Q17 margins

In 1Q17, Fiat Chrysler’s reported adjusted EBIT (earnings before interest and tax) stood at ~1.5 billion euros (or ~$1.7 billion). During the quarter, the company’s EBIT margins rose to 5.5% from 5.2% in 1Q16.

Similarly, FCAU’s adjusted net profit came in at 671.0 million euros (or $729.0 million) with a net profit margin of 2.4% in 1Q17. This was far better than its net profit margin of 1.8% in 1Q16. A favorable product mix and firm global sales were among the key reasons for this increase in Fiat Chrysler’s margins in 1Q17.

Estimates for 2Q17 margin

According to Wall Street analysts’ estimates, FCAU is likely to report an EBITDA[1. earnings before interest, tax, depreciation, and amortization] margin of ~11.6% in 2Q17. This shows a handsome expansion over its 2Q16 EBITDA margin of 9.3%.

Similarly, analysts estimate that Fiat Chrysler’s net profit margins could expand to 2.8% in 2Q17. FCAU reported net profit margins of 1.2% in 1Q16. FCAU’s US truck segment sales rose on a YoY basis in the first half of 2017, which could help its margins expand in 2Q17. This increase could occur because heavyweight vehicles such as trucks tend to have higher margins for automakers (XLY) compared to small cars.

Despite the recent increase, Fiat Chrysler’s profit margins in North America are much lower than those of other big automakers such as Ford Motor Company (F), General Motors (GM), and Toyota (TM).

Read on to the next part to learn how Fiat Chrysler’s current leverage position looks before its 2Q17 earnings results are released.

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