Can Fiat Chrysler Meet Its 2017 Debt-Reduction Targets?



FCAU’s leverage position

The auto industry is highly capital intensive due to the high raw material and manufacturing costs involved. For this reason, auto giants such as Fiat Chrysler Automobiles (FCAU) tend to utilize debt extensively. 

Let’s take a look at how Fiat Chrysler’s latest leverage ratios look ahead of its 4Q17 earnings release.

It’s important to note that a high debt position also increases a company’s risk profile. Debt is considered a contractual obligation that must be fulfilled regardless of market conditions. Therefore, investors should pay attention to auto companies’ leverage positions.

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Recent update on debt position

At the end of fiscal 3Q17, Fiat Chrysler’s net industrial debt stood at 4.4 billion euros, or ~$5.4 billion. This reflected a rise of ~179 million euros, or ~$220 million, compared to the end of the previous quarter. Nevertheless, the company managed to reduce its net industrial debt by 180 million euros, or ~$221 million, in the first three quarters of 2017.

During Fiat Chrysler’s 3Q17 earnings call, its management reassured investors of its net industrial debt reduction targets. By the end of 2018, the company aims to have its net industrial debt reduced to ~4 billion–5 billion euros cash.

Will it meet 2017 guidance?

Time after time, FCAU’s management has reassured investors that the company has more than enough liquidity to make major reductions in its debt levels in the coming years.

Earlier in 2017, Fiat Chrysler’s management mentioned that it expects to reduce the company’s net industrial debt to less than 2.5 billion euros, or $2.7 billion, by the end of the year. Therefore, investors could be eyeing the company’s progress in this direction during its 4Q17 earnings event.

Note that Fiat Chrysler has the most debt built in to its capital structure among most major automakers (IYK), including Ford Motor Company (F), Toyota Motor (TM), and General Motors (GM). Continue to the next article to find out where FCAU’s valuation multiples are at leading up to its 4Q17 earnings release.


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