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Why Might Fiat Chrysler’s Profit Margins Expand in 4Q17?

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Jan. 19 2018, Updated 7:33 a.m. ET

FCAU’s 4Q17 earnings

Previously in this series, we discussed why analysts may be expecting Fiat Chrysler Automobiles’ (FCAU) 4Q17 revenue to rise YoY (year-over-year) in 4Q17. 

Despite lower 4Q17 US sales, higher sales figures in the European and Latin American markets could benefit FCAU. Now let’s take a look at Fiat Chrysler’s 4Q17 margin estimates.

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Positive trend in profit margins

In 3Q17, Fiat Chrysler reported adjusted EBIT (earnings before interest and tax) of 1.8 billion euros, or $2.1 billion. During the quarter, the company’s EBIT margin expanded to 6.7% from 5.6% a year ago.

Similarly, FCAU’s adjusted net profit came in at 992 million euros, or $1.1 billion, with a net profit margin of 3.4% in 3Q17. This result was far better than its net profit margin of 2.3% in the same quarter of 2016.

A solid operating performance and lower financial charges were two of the key drivers of the expansion in the company’s profit margins in the third quarter.

Estimates for 4Q17 profit margin

According to Wall Street analysts’ consensus estimate, Fiat Chrysler is likely to report an EBITDA (earnings before interest, tax, depreciation, and amortization) margin of ~11.4% in 4Q17. This figure reflects a significant expansion of the company’s 4Q16 EBITDA margin of 9.8%.

Similarly, analysts expect Fiat Chrysler’s net profit margin to have expanded to 3.0% in 4Q17. The company reported an adjusted net profit margin of 1.4% in 4Q16. The higher contribution of FCAU’s retail sales to its total US vehicle sales YoY in 2017 may have continued to help its profit margins to expand in 4Q17. Retail vehicles sales tend to have higher margins for automakers (IYK) compared to fleet sales. 

Note that despite its recent expansion, Fiat Chrysler’s North American profit margin is lower than those of other big automakers Ford Motor Company (F), General Motors (GM), and Toyota (TM). In 3Q17, GM, Ford, and TM reported adjusted net profit margins of 5.8%, 4.6%, and 6.4%, respectively.

Read on to the next article to learn about how Fiat Chrysler’s current leverage position looks ahead of its 4Q17 earnings results.

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