Stellantis Pumps Up Profitability Forecast in Earnings Debut

(Bloomberg) -- Stellantis NV raised its full-year profitability outlook substantially as strong demand and pricing carried the carmaker to much better-than-expected results for the first half.

Adjusted operating income margin will be about 10% for the year, the automaker formed from the merger between Fiat Chrysler and PSA Group said Tuesday. Stellantis notched an 11.4% return in the first six months, more than double the low end of the range forecast in March.

Stellantis and its biggest carmaking peers have raised prices and sold a richer mix of higher-end vehicles due to the production constraints brought about by the semiconductor shortage. The issue cost the company output of about 700,000 vehicles in the first half, and the impact will be similar for the remainder of the year, Chief Financial Officer Richard Palmer said on a call with reporters.

“We had a strong first half in terms of margins,” Palmer said. The company expects the chip situation in the third quarter to be roughly in line with the prior three months -- when output was crimped by 500,000 units -- and potentially improve toward year-end.

Stellantis shares gained as much as 4.1% in Milan trading.

North America was the company’s standout region in the first half, bolstered by Fiat Chrysler’s Jeep SUV and Ram truck brands. Net revenue soared 42% to 32.4 billion euros, and the company earned a 16.1% margin.

The manufacturer raised its industry sales outlook for the U.S. market to 10% growth this year, from 8%, and reiterated that it expects 10% expansion in Europe.

Rising prices for raw materials including steel, aluminum, precious metals and copper raised costs by about 700 million euros in the first half and are expected to lead to an even bigger hit in the final six months of the year, Palmer said.

Stellantis ended June with inventory of 882,000 vehicles, down about a third from what Fiat Chrysler and PSA had in stock a year earlier.

The company said it expects to meet European rules on carbon pollution this year and saved about 135 million euros in the first half after exiting a costly deal with Tesla Inc. to offset emissions in the region.

Chief Executive Officer Carlos Tavares last month unveiled a plan to plow 30 billion euros into electric cars and software. Stellantis will shift to battery power quicker in Europe -- which has proposed phasing out combustion engines by 2035 -- than in the U.S. and keep plug-in hybrids in the mix.

Stellantis doesn’t report earnings on a quarterly basis. Its biggest European rivals have posted upbeat results, with Volkswagen AG lifting its full-year profitability outlook on booming demand for premium Porsche and Audi models. Renault swung to a first-half profit.

In the premium category, Daimler AG reported double-digit profit margin with its cars-and-vans division for a third-straight quarter, while BMW AG on Tuesday also said profitability surged and issued a similar warning about production curbs due to semiconductor shortages.

What Bloomberg Intelligence Says

Like Mercedes, Stellantis appears on track to achieve its midterm margin target this year, having encouragingly reported a strong 1H operating-margin beat (11.4% vs. consensus of 7.9%) and upgraded full-year guidance to about 10% (from 5.5-7.5%). A 16.1% North American margin drove the outperformance, and bodes well for a sustained double-digit company-wide margin, with synergies of at least 5 billion euros still to be realized. Negative free cash (already flagged in July) took the shine off strong results.

-- Michael Dean, BI automotive analyst

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In the U.S., Ford Motor Co. posted a surprise second-quarter profit, and General Motors Co. is scheduled to report earnings Wednesday.

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