Fiat Moves Closer to Wiping Out Debt With Surprise Numbers

(Bloomberg) -- Fiat Chrysler Automobiles NV Chief Executive Officer Sergio Marchionne moved closer to a goal of erasing the automaker’s debt by midyear, with an unexpected announcement that net industrial obligations fell by 45 percent in the first quarter.

The figure, which excludes financial-services debt, dropped to 1.31 billion euros ($1.6 billion) at March 31 from its year-end level, Fiat Chrysler said Thursday in an emailed statement. The Italian-American manufacturer made progress despite the cost of launching new Jeep Wrangler and Ram 1500 models, and currency rates that led earnings before interest and taxes to slightly miss analysts’ estimates.

Marchionne, who is almost never seen in public sporting a tie, has pledged to wear one at a shareholder meeting on June 1 -- if he’s ready to declare victory on a goal of ridding Fiat Chrysler from net industrial debt by midyear. At the meeting, the 65-year-old CEO will unveil his last five-year plan at the automaker he’s run since 2004.

Fiat Chrysler is the only major carmaker still working off a debt load, the legacy of previous European losses and the acquisition of Chrysler after bankruptcy -- and being free of it gives Marchionne greater flexibility on investments and rewarding shareholders with a potential dividend. Analysts at Evercore ISI had expected net industrial debt of about 2.6 billion euros at quarter’s end.

Elminating it is one of Marchionne’s last big goals before he “passes the baton” to one of his aides next year with his retirement. He’s said he wants to leave the company with a strong enough balance sheet to weather any industry crisis and put it in a position to eventually discuss a merger.

The shares rose as much as 3.2 percent in Milan trading, quickly rebounding from a down-limit halt that followed the profit miss. The stock has gained 32 percent so far this year, giving the company a market value of 29.7 billion euros.

First-quarter results are typically the weakest of the year for U.S. carmakers because of fewer sales in the winter and higher investments.

Marchionne wants Fiat Chrysler to complete this year with about 4 billion euros in net cash. When he announced the plan in 2014, Fiat had about 10 billion euros in debt, and skeptics have called the targets “Fantasyland” and “not credible.” Fiat is on pace to meet all of of its goals from that period, excluding a volume target that was scrapped two years ago as the carmaker ditched uprofitable cars for higher-margin sport utility vehicles.

In June, Marchionne will outline a new five-year plan in which share buybacks and dividends become “endemic” to its structure, he said in the interview. In contrast with its American peers, Fiat Chrysler hasn’t paid a dividend since it was formed the 2014 merger of Fiat and Chrysler.

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