FCA Earnings:Manley call With Wall Street ......Profits down

[AlexB]

https://www.fcagroup.com/en-us/investors/events/quarterly_results_presentations/FCA_2019_First_Quarter_Results_Presentation.pdf

https://edge.media-server.com/m6/p/d4e4nobi

WIll give a one on the go run down of Q&A Conference Call.

Manley is giving the promies the second half will be better once the Gladiator launch further ,Toledo downtime is behind them. Expecting prices in North America Vehicle sales to be higher,and will if necessary give up volume for price.

 

[AlexB]

Palmer stated they entered into various agreements of €1.8 billion of emission tax credits.

 

[AlexB]

Palmer stated CapEx for 2019 is €8.5 billion Euros (Product)

 

[AlexB]

Q&A Has start.

 

[AlexB]

UBS analyst ask how they going to meet their guidence becuse its a big step up in profits vs Q1 2019.

Palmer stated its NAFTA/"Chrysler" driven in second half.

 

[AlexB]

BOFA analyst ask about FCA's cash and liquidity balance.
Palmer stated its about growing cash on the balance sheet with target of €25 billion.

 

[AlexB]

Gladiator question, Manley stated their is 25,000 consumer pre-orders already. Seem happy with that question.

 

[AlexB]

Manley is happy with two RAM strategy, will use RAM classic to develop commercial fleet business.

 

[AlexB]

Manley not concern with NAFTA inventory.

 

[AlexB]

Here's Adam Jonas from MS....

 

[AlexB]

Adam ask about alliance "instead of paying Tesla so much damn money".

 

[AlexB]

Manley shuts down merger/alliance questions....and jokes " I'm learning! "

 

[AlexB]

Adam's other question was about metric-ton Truck/Dakota replacement.

Manley stated as time goes on, they how radically different the solutions will need to be base on geographically. So it will come down to which is the bigger need & cost effective (for FCA).
So it sound like either an International-focused Truck , or a North American focused Truck.

 

[AlexB]

Manley being as about Guidance again....just repeat.
Call over.

 

[Bili]

FCA reports first quarter 2019 results with Net profit from continuing operations of €0.5 billion, Adjusted net profit of €0.6 billion, Adjusted EBIT of €1.1 billion, margin at 4.4%. Full-year guidance is confirmed.

• Worldwide combined shipments(1) of 1,037 thousand units, down 14%, primarily due to non-repeat of overlapping all-new and prior generation Jeep Wrangler production and planned realignment of commercial strategies in Europe
• Adjusted EBIT decreased 29%, primarily from lower volumes partially offset by positive net pricing in North America
• Industrial free cash flows from continuing operations of €(0.3) billion; outflows contained despite lower earnings and working capital seasonality


“The market is responding enthusiastically to the roll out of our new products and we continue to execute initiatives that will strengthen the underperforming parts of our business. Based on these factors and our first quarter results being in line with our expectations, we are confident in our 2019 guidance.” - Mike Manley, CEO


First quarter Adjusted EBIT and margin declined versus the prior year, as anticipated, largely due to the non-repeat of parallel production of the previous generation Jeep Wrangler alongside the new model and transitioning to our new commercial strategy in EMEA. The effect of reduced volumes globally were partially offset by continuing growth in Ram volumes, improved net pricing, particularly in North America, along with better channel and product mix in several markets. An important highlight this quarter is the strong performance of the Ram 1500, which claimed the number two position in the profitable U.S. light-duty segment for the quarter with a market share of 23.3%, an increase of 4.5 percentage points over last year.

We took several steps to strengthen our business in the first quarter. These included the successful negotiation of a labor agreement in Italy and continued implementation of cost-containment actions in all regions. In addition, we announced an extension to our partnership with Groupe PSA whereby FCA will increase production capacity in the Sevel joint operation, enabling our future growth in the high margin LCV segment in Europe.

Other steps taken include the addition of new senior leaders to drive improved performance; an aggressive focus on Maserati distribution network and marketing; and, progress towards a restructure of our JV in China.

Further, the launches of the all-new Ram Heavy-Duty and Jeep Gladiator are on track and generating enthusiastic responses from the market. These products will contribute to volume and margin expansion in North America, particularly in the second half of the year. At the Geneva International Motor Show, the Group unveiled two Jeep PHEV models slated initially for the EMEA market beginning early 2020, as well as a new Alfa Romeo compact SUV concept and a high-tech, modular and electrified Fiat concept.

In the U.S., we announced plans for a major industrial investment that will support the introduction of two new Jeep-branded “white-space” SUVs, both with electric powered variants. Similarly, the confirmation of the previously announced manufacturing investment in Italy will accelerate the introduction of key PHEV and BEV products in the EMEA markets.

Finally, the sale of Magneti Marelli was completed on May 2, 2019, resulting in cash proceeds of €5.8 billion. The Board of Directors approved an extraordinary cash distribution of €1.30 per share, or approximately €2.0 billion, to be paid on May 30, 2019 to shareholders of record on May 21, 2019, with an ex-dividend date of May 20, 2019.


https://www.fcagroup.com/en-US/medi...s/2019/may/FCA_2019_FIRST_QUARTER_RESULTS.pdf

 

[Blown7]

Thanks

So what does all the smart people make of all this?

 

[Bili]

Mike Manley
...
So now let me turn to the business and have a quick look at some of the other highlights from the quarter. The launch of the all-new RAM heavy duty pickup is underway and production is ramping up as planned. That's actually slightly ahead of plan. We expect this vehicle to build on the positive momentum we have in the truck business in North America.
We also announced the investments to facilitate the launch of the next generation Grand Cherokee and two new whitespace products for the Jeep brand and these vehicles will enter high margin segments and will start production late 2020 early 2021.
The Jeep Renegade and compass plug in hybrid vehicles were revealed at the Geneva Auto Show in March and these will start production early 2020 and represent the initial ramp up of high voltage vehicles for our European fleet and they'll be followed by the all new Fiat 500 bat and ten additional launches of heavy - heavily electrified vehicles over the following two years.

Now in line with our previously announced compliance strategy for both the US and EMEA, we also executed agreements to buy regulatory credits. These credit purchases are designed to minimize FCAs cost to compliance and provide us with a strong hedge against the potential for a lower price recovery in the market than the cost of the technology.

Now this is a complementary action to our continued investment, development and deployment of our electrified fleet which will reach 17 nameplates by 2022 and it will bridge the period until we see the combination of market acceptance, technology cost and infrastructure development reaching the point that makes sales of heavily electrified vehicles more financially rational. The cost of these combined actions was envisaged and embedded in our guidance and our business plan
...

Patrick Hummel
...
My second question would be on Europe and the profitability outlook. Taking into account the steep step down in CO2 emissions that's required to comply, plus the money you have to pay to Tesla. I'm just wondering if from today's perspective you would expect EMEA to be profitable in 2020? And very lastly, can you just give us an update on the remaining supplier businesses in your portfolio, any update on the strategic plans for those two assets? Thank you.

Richard Palmer
...
In terms of your last - in terms of the second question, the compliance costs for EMEA for this year we target - we're expecting at around €120 million, going into next year we would expect that to increase. However, the fact that we've brought - we've entered into the pooling [ph] agreement with Tesla, will significantly mitigate the increase.
So we think - I think it's a bit early to give you a number on that, given as we're working on this and we'll obviously keep you updated as we work through the launches of the vehicles for the heavy electrification strategy which we have launching the Renegade, the Compass and Fiat bat [ph] next year.
And obviously our focus is on launching vehicles and being compliant through selling those EVs, but it's also true to say that I think we believe the strategy to augment that with the use of the pooling agreement will help us to be more flexible as we launch those vehicles and wait for the market acceptance more generally of EV vehicles and the volumes that we all need to hit.

Mike Manley
Let me just add something on top of that Richard, in terms of - in terms of EMEA obviously what we saw even though it was masked [ph] really by the volume as we saw, the effect of reducing our central [ph] zero kilometre vehicles and other low margin channels, but we did see the increase now in our dealer retail channel which is positive and obviously that's going to continue as we get through the year.
In addition to a series of restructuring actions that will begin to give us traction, I think the second half is - second quarter and through the balance of this year with increased shipments we were positive that by the time we get to the end of the year you're going to see EMEA return to margins in the order of around 3%.
...

Aileen Smith
Great. That's helpful. And can you talk a bit about your broader macro assumptions, particularly flattish in APAC and EMEA for the full year that incorporates an inflection and improvement in the back half. If alternatively the macro environment remains volatile and weak in those regions, what types of actions can you take from a price or cost perspective to offset potential volume pressure?

Mike Manley
...
I think in EMEA you're going to progressively see the benefits of the strategy that we've got in place. And part of reducing those central zero kilometre sales is that they tended - they always ended up back in the dealer channel clogging up and replacing new vehicle sales.

Aileen Smith
Great. That's helpful. And one last one if I may, I realize it's very early days in the Jeep Gladiator launch, but can you talk about some of the traction you're seeing at the dealer and consumer level. And in terms of the consumer you're pulling in on Gladiator. Are they primarily coming to trading on Wrangler or are you pulling in more traditional pickup buyers?

Mike Manley
I can tell you - I can't answer the second question yet. What I can tell you is when we - when we opened the vehicle for orders we now set and it's a very short space of time, something like 25000 orders from our dealers for the vehicle, which is probably one of the quickest order ramp ups that I can I can remember. And obviously as it gets into the market we’re able to profile where our customers are coming from. We in subsequent quarters we have to give you more information.

Brian Johnson
Yes. Good morning, Mike and Richard and team. Just following up on the last set of questions, one thing concerning to some observers over here is the high levels of Ram inventory and the high levels of Wrangler inventories. What does that mean for 2Q - how did it get there, what does that mean for 2Q production levels? And are you comfortable you're running the operations with kind of a tied eye that at dealers stock has [indiscernible]?

Mike Manley
...
With Wrangler, what - remember what's happening with Wrangler is the plant is going to go down for a period of time now in preparation for the plug in hybrid. So that was with an eye for that, that obviously was embedded in our forecast and our plans for the second quarter.
...

Brian Johnson
Okay. And any kind of thoughts following up on that - on continued two truck strategy or legacy Ram, new Ram. How long you might continue to follow that and what kind of volume mix you might be thinking about, because it's hard to tell outside in between the two platforms?

Mike Manley
I think the strategies worked well for us. We've really thought about which models, as you know the Classic really is the - what I would call the real traditional workman's truck in our Express and our tradesmen side. That's where we intend to keep it, which means we can focus our new truck with all of its technology on the mid to high price band. I see no reason at this moment in time in the foreseeable future to change that strategy.
We saw a big swing of course from Classic to the new truck. As we continue to work to develop our fleet sales, you're going to see DS volume which is our internal code for Classic to increase.
You know we made very big gains in total share and very big gains in retail share, but where we still sit with a big opportunity is in government and commercial sales. To some extent last year our fleet business teams were not able really to address that because all of the supply was dedicated to other channels. We think there's an opportunity for us to grow and I think that the Classic truck will be one of the areas that enables us to do that.

Adam Jones
Okay. Thank you. All right. Just a couple other questions. Has FCA made a decision to reintroduce the Dakota process there?

Mike Manley
No I don't think it will, maybe the Ram team and FCA professional team are very focused on solving a metric ton midsized truck solution for us because it's a big part of the portfolio and the growth that we want to achieve.
It's an interesting question and it's an easy question dilemma for them because on the paper they may look at the same vehicles, but in reality they're very, very different vehicles. So us being able to find a cost effective platform in a region where we can build it with low cost and its still being very applicable in the markets is what they're struggling within the moment.
I want that problem solved frankly, because it's a clear hole in our portfolio. It will not be filled with Gladiator, because Gladiator has a very, very different mission. But trust me on that, they're focused on it. We need to get it fixed in.

Mike Manley

Demian, this is Mike. I'm going to answer your first question because I actually – its obviously on many people's minds, so I'm going to try and be as accurate as explicit as I can on this area.

If I think about 2019, as we came into the year with 2019 with the fleet that we had without making dramatic changes that would have impacted our profit, I estimate and I'm looking at - I'm looking at Richard, I estimate we probably would have picked up a fine of around 350, 375 something like that, 390, 390 in the marketplace.

The route that we've taken is dramatically, dramatically reduced that number and we will achieve compliance. So in 2019 what you're going to see in terms of my split and obviously it's not going to be - it is going to be close, but it's not going to be exact. I would say we will achieve compliance roughly with 20% of conventional technology because we're in the process of now rolling out a high efficiency energy and other technologies areas reduce vehicle demand.

Now remember most of our competitors have already done that. We chose to do it this year. That will bring us about 20% there, the rest 80% will be through credit pooling. So then I think then through 2021 for example, obviously in 2020 we'll have the two plug in hybrids and the battery electric vehicle.

In 2021, I think that conventional tech will give us about 40% of our compliance, electrification by that time we will then have five vehicle. We'll have more than that, we'll have three from 2020, plus another six coming on stream.

In Europe 45% of our compliance will probably come from electrification, about 15% from purchase credits and then as we get into 2022, I think electrification roughly 50% to 60% conventional tech 40% and if there is a need for pooling it will be very, very small.

So I think we have a picture and a strategy that will do two things. One, I think it will be a good hedge for us in terms of - if pricing is not available to fully recover the cost of that technology and obviously there is still some work to do to roll our infrastructure and drive consumer demand.

And secondly, I would stress that, that we are continuing and have continued with the investment and development of our electric vehicle, so we have flexibility in terms of how we achieve over that period of time and that's how I'm thinking about it. That's how I'm thinking about the part of our compliance strategy that involves credit purchasing in Europe. Is that helpful?

Fiat Chrysler Automobiles N.V. (FCAU) CEO Mike Manley on Q1 2019 Results - Earnings Call Transcript

 

[Freshforged]

Interesting how he sees a two-truck marketing plan going forward. Looking forward to seeing what they come up with for the mid/compact truck market. Really think there’s space for a very different type of truck than we generally see here in the US.

 

[Mopar426]

Thanks

So what does all the smart people make of all this?

They are going to keep cranking the prices of their vehicles higher and while this turns away buyers (have you seen the dive in sales?) they should still be making money, but apparently that isn't the case either.

And this is his answer "Manley promies the second half will be better once the Gladiator launches, Toledo downtime is behind them. Expecting prices in North America Vehicle sales to be higher,and will if necessary give up volume for price.

Uhh you've been doing this for a few years now Mike

 

[Blown7]

They are going to keep cranking the prices of their vehicles higher and while this turns away buyers (have you seen the dive in sales?) they should still be making money, but apparently that isn't the case either.

And this is his answer "Manley promies the second half will be better once the Gladiator launches, Toledo downtime is behind them. Expecting prices in North America Vehicle sales to be higher,and will if necessary give up volume for price.

Uhh you've been doing this for a few years now Mike

Thanks for that.

What I'm seeing on the Glad forum is a whole new bunch of people new to Jeep and the Glad in particular as it is a new vehicle. I don't see many JL guys saying they are trading up. Most folks seem to be pretty new to FCA given the questions they ask.
I myself was part of the Launch Edition pre order crowd and during the liaison call from FCA to dealer I decided the LE wasn't for me after I read the specs on towing and v-6 performance.

Many people seem to want one but the price point just seems beyond what alot of folks want to pay. Plus with the Ram 1500 price point being the same if not a couple bucks lower.. for a vehicle that can tow and basically outperform the Jeep some are rethinking the Glad and looking at the Ram.

All agree that the Ram isn't as fun and does not have a removeable roof for those fun days so a definite plus for the JT.