Sales and job cuts help Fiat return to a profit

By Mathias Wildt Bloomberg News

TUESDAY, JANUARY 31, 2006

MILAN Fiat reported a fourth-quarter profit on Monday after drastic job cuts and a rise in sales from the redesigned Punto ended 17 successive quarters of losses at the car unit.

Net income was E38 million, or $46 million, compared with a loss of E550 million a year earlier, said Fiat, which is based in Turin. Sales rose 7.5 percent, to E13.1 billion. Fiat Auto had an operating profit of E21 million as sales rose 6.6 percent, to E6.2 billion.

Fiat's chief executive, Sergio Marchionne, laid off half of the Italian work force, cutting costs by more than E500 million. He sped the introduction of a new version of the Punto hatchback in September, reversing a decline in market share. Fiat in August said it planned to invest E10 billion in its auto unit and build 20 new models over the next three years to lift sales and restore profit.

"The numbers are all pointing in the right direction," said Philippe Houchois of J.P. Morgan in London. "The auto business did as well as I'd expected and the nonauto businesses are doing better."

The shares rose 4 cents to close at E8.21 in Milan. The stock has gained 12 percent this year.

Fiat reported a full-year profit of E1.3 billion, helped by one-time gains, including a E1.5 billion payment from General Motors to end a failed alliance, E850 million from the sale of a stake in Italenergia Bis, and E700 million from the sale of new shares to repay a E3 billion convertible loan to eight banks.

"You need to put Fiat Auto's performance in parallel with those of Renault and Peugeot, both of whom issued profit warnings," said Patrice Solaro, an analyst at Kepler Equities in Paris.

The carmaker in September introduced the Grande Punto, a new version of Fiat's best-selling model, and has sold 100,000 so far. The car accounts for 20 percent of Fiat Auto's vehicle sales.

Because of the success of the new model, Fiat will bring forward the opening of a second production line of the Punto to May from September, Marchionne said. He said there were four weeks of back orders to fill for the new model. Fiat also aims to sell 220,000 Panda small cars this year.

Fiat said it ended the year with E7 billion in cash, compared with E6 billion at the end of 2004, and reduced its net industrial debt to E3.2 billion from E9.4 billion.

The company reaffirmed a profit forecast of E700 million this year and E2 billion in 2007. Fiat expects to have positive cash flow in 2006.

Fiat's Italian market share in 2005 declined from March to August and then rose in the last four months after the Punto's introduction, leaving the full-year share unchanged at 28 percent. The carmaker accounted for 6.5 percent of cars sold in Western Europe last year, down from 7.4 percent. Fiat has said it decided to sacrifice market share to lift profit from each vehicle. Fiat said it expected the West European car market to be stable this year.

Fiat expects an average Italian market share of 30 percent this year, Marchionne said. He aims for a West European market share of 7.2 percent this year, and worldwide sales of 1.8 million units.

"There are four countries we will invest in to boost sales in Europe: Germany, France and Spain and U.K., particularly for Alfa Romeo," Marchionne said

Iveco, Fiat's truck-making unit, reported an operating profit of E138 million, compared with E148 million in the same period last year. Sales rose 9.8 percent to E2.8 billion. Fiat expects higher Iveco truck and bus sales this year.