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Could FCAU’s Profit Margins Continue to Expand in 1Q18?

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Apr. 24 2018, Published 7:00 a.m. ET

FCAU’s 1Q18 earnings

Previously in this series, we saw why analysts could be expecting Fiat Chrysler Automobiles’ (FCAU) 1Q18 revenues to be marginally higher YoY (year-over-year). Despite lower 1Q US sales, continued strength in European and Latin American sales could benefit the company. Now, let’s take a look at Fiat Chrysler’s 1Q18 margins estimates.

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Reviewing recent trend

In 4Q17, Fiat Chrysler reported adjusted EBIT (earnings before interest and tax) of 1.9 billion euros or $2.4 billion. During the quarter, the company’s EBIT margins expanded to 6.6% from 5.2% in 4Q16.

Similarly, FCAU’s adjusted net profit came in at 1.1 billion euros or $1.4 billion with a net profit margin of 3.8% in the fourth quarter last year. The company’s 4Q17 net profit margin was far better than the 1.8% in 4Q16.

In the final quarter last year, FCAU managed to report higher profitability from all its business segments. The company attributed its improved profitability to its solid operating performance and its capacity realignment plan in North America.

Estimates for 1Q18

According to Wall Street analysts’ estimates, Fiat Chrysler is likely to report an EBITDA (earnings before interest, tax, depreciation, and amortization) margin of about 11.4% in 1Q18, which would be a significant expansion over its 1Q17 EBITDA margin of 11.3%.

Similarly, analysts were estimating FCAU’s net profit margin to expand to 3.8% in 1Q this year. The company reported an adjusted net profit margin of 2.3% in the first quarter of 2017. Strength in Fiat Chrysler’s US retail sales could be one of the reasons why analysts expect its profit margins to expand in 1Q18. This is because retail vehicles sales tend to have higher margins for autos (FXD) as compared to fleet sales.

Despite the recent increase in Fiat Chrysler’s profit margins in North America, they are still lower than those of other companies including Ford Motor Company (F), General Motors (GM), and Toyota (TM). In 4Q17, GM, Ford, and TM reported adjusted net profit margins of 4.0%, 6.3%, and 12.4%, respectively.

Continue to the next part to learn how Fiat Chrysler’s current leverage position looks before its 1Q18 earnings results.

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